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UNI 


AMERICAN  RAILROADS 

GOVERNMENT  CONTROL 

AND  RECONSTRUCTION 

POLICIES 


BY 

WILLIAM  J.  CUNNINGHAM,  A.  M. 

JAMES  J.  HILL  PROFESSOR  OF  TRANSPORTATION 

GRADUATE  SCHOOL  OF  BUSINESS  ADMINISTRATION 

HARVARD  UNIVERSITY 


A.  W.  SHAW  COMPANY 

CHICAGO  NEW  YORK 

LONDON 


COPYRIGHT  1828 


A.  W.  SHAW  COMPANY 


PRIMTBD  IN  THE  CNITEO  BTATXB  OF  AMEBICA 


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A 


CONTENTS 

«IAPTEB  rXQM 

Preface     7 

I.     Introduction 9 

Three  periods  in  railroad  history.     Unrestrained 
•V  development.      Regulation    by    States.      Federal 

'^  regulation.       Facilities     kept    ahead    of    traffic. 

^  Development   arrested   1906-1910. 

I 

^^  II.     The     Railroad     Situation     During     the 

^*" '  Decade  1906-1916 16 

Physical  condition  of  railroads.  Curtailment  in 
improvements  from  190b".  Receiverships  in  1915. 
Overload  of  war  traffic. 

III.  The  Railroads'  War  Board 23 

Reasons  for  creation  of  board.  Organization. 
Achievements.    Causes  of  failure. 

IV.  Compulsory   Unification   under   Federal 
Control 33 

The  President's  proclamation.  Reasons  for  fed- 
eral control.  Organizatioh  of  U.  S.  Railroad 
Administration.     McAdoo's  policies. 

V.     The  Contract  between  the  Government 

AND  THE   Railroad   Companies    ....      63 

Points  in  dispute.  Compensation.  Measures  of 
upkeep.  Delay  in  execution  of  contracts.  Short 
lines.     Express  contract. 

VI.     Policies  of  Unification 66 

Terminals  and  trackage.     Pooling  of  equipment. 
Movement  via  direct  routes.    Consolidated  ticket 
offices.     "Off  line"  agencies  and  advertising. 
3 


^ 


4  AMERICAN  RAILROADS 

Chaptee  Page 

VII.     Standardizing  the  Design  of  Equipment     77 

Standards  for  locomotives.  Defects  in  general 
plan.    Freight  cars. 

VIII.     Accounting  and  Statistical  Innovations     82 

Federal  and  corporate  accounts.  Universal 
interline  way-bill.  Arithmetical  checking.  Appor- 
tionment of  revenues.  Freight  car  accounting. 
Operating  statistics. 

IX.     Passenger   and   Freight  Service  in   1918     87 
Curtailment   of   passenger   service.    Joint   ticket 
offices.    Priority  orders  in  freight  service.    Sail- 
ing Day  plan.     "Off  line"   agencies. 

X.     Rates  in  1918 95 

Control  over  rates.  Rate  increases.  Traffic  com- 
mittees.    Uniform  classification. 

XI.     Labor    Policies    during    First    Year    of 

Federal  Control 101 

Demands  of  employees.  Railroad  Wage  Cora- 
mission.  Division  of  Labor.  Wage  increases. 
Board  of  Wages  and  Working  Conditions. 
Adjustment  boards.    Effect  on  payroll  expenses. 

XII.     Operating  Results  in  1918 123 

Traffic  congestion.  Export  food  situation.  Move- 
ment of  coal.  Troops  movement.  War  tonnage 
satisfactorily  transported.  Passenger  service. 
Financial  results. 

XIII.     The  General  Situation  in  1919   ....    136 

Lowering  of  morale.  McAdoo's  advocacy  of  ex- 
tension of  federal  control.     Hines'  difficult  task. 


XIV.     Relations  with  State  Commissions:  Atti- 
tude ON  Rate  Adjustments  in  1919    .    .    l^l 
Improved     relations     with     Stale     Commissions. 
Shippers'    representation    on    traffic    committees. 
Adjustment     of     rate     inequalities.      Operating 
deficits.     Hines'  refusal  to  increase  rates. 


AMERICAN  RAILROADS  5 

Chapter  Page 

XV.     Upkeep  of  Physical  Property  .    .    .    .    .153 

Curtailment  of  maintenance  in  1919.  Expendi- 
tures compared  with  test  period.  Condition  of 
equipment. 

XVI.     Additions  and  Betterments  during  Fed- 
eral  Control 163 

Policies  of  Director  General.  Summary  of 
expenditures.     Nature  of  work. 

XVII.     PdsT-WAR  Labor  Policies  of  the  Director 

General 171 

Labor  unrest  in  1919.  Supplementary  wage 
increases.  Strikes  of  shopmen  and  others. 
National  agreements.  Centralization  of  au- 
thority.    Standardization.     Adjustment  boards. 

XVIII.     Financial   Results  of  Entire   Period   of 

Federal  Control 199 

Extent  of  operating  deficit.  Claims  for  under- 
maintenance.    Director  General's  explanation, 

XIX.       How     FAR     THE      POLICIES      OF     UNIFICATION 

HAVE  PROVED  PERMANENT 206 

Joint  use  of  terminals,  trackage  and  equipment. 
Equipment  standards.  Accounting  short-cuts. 
Standardized  operating  statistics.  "Off  line" 
agencies  and  advertising.  Centralization  of  pur- 
chasing. Permit  system  for  freight.  Passenger 
train  service. 

XX.     Political    Influence    during    Federal 

Control 213 

Political  influence  in  labor  and  other  policies. 
Adequacy  and  accuracy  of  published  statements. 
Manipulation  of  rates  and  service.  Federal  con- 
trol not  adequnte  t<'st   of  nationalization. 


XXI.     The   Transportation  Act   of    1920    .    .    . 

Summary  of  Act  as  finally  approved.  Transi- 
tion period.  Rate-making  rule.  Railroad  con- 
solidation.   Creation   of  Labor  Board. 


219 


6  AMERICAN  RAILROADS 

Chapter  Page 

XXII.     Railroad  Events  in   1920 236 

Transition  from  federal  to  private  control.  Rate 
advances.  Wage  advances.  Record  movement 
of  traflSc.  Financial  results.  Comparison  with 
1916. 

XXIII.     A  Review  of  the  Year  1921 264 

Public  criticism  of  rates.  Wage  reductions. 
Shrinkage  in  net  income.  Deferred  maintenance 
and  improvements. 

XXIV.     The  Situation  in  July,  1922 268 

Publicity  policies.  Railroad  executives  seeking 
other  fields.  Transportation  not  attracting  col- 
lege men.  Shopmen's  strike.  Problems  of 
finance.     Railroad  consolidation. 


APPENDIX 

The  President's  Proclamation  and  Statement  to 
Congress 301 

The  Federal  Control  Act 310 

The  Standard  Contract 329 

The  Accomplishments  of  the  U.  S.  Railroad  Ad- 
ministration IN  Unifying  and  Standardizing  the 
Statistics  of  Operation 367 

Index 407 


PREFACE 

THIS  volume,  while  intended  as  a  review  of 
railroad  events  during  the  years  1917  to 
1922,  deals  primarily  with  the  period  of  fed- 
eral control,  January  1,  1918,  to  March  1,  1920. 
During  the  greater  part  of  that  time  the  author, 
while  on  leave  of  absence  from  Harvard  Univer- 
sity, was  officially  connected  with  the  United 
States  Railroad  Administration  and  served  on  the 
staff  of  the  Director  General  of  Railroads,  first  as 
manager  of  the  operating  statistics  section  and 
later  as  assistant  director  of  operation.  Through- 
out the  book  the  policies  and  results  of  federal 
control  and  the  problems  of  the  reconstruction 
period  are  discussed  from  the  viewpoint  of  oper- 
ating administration. 

The  chapters  which  relate  to  the  organization 
and  achievements  of  the  United  States  Railroad 
Administration  are  based  in  part  upon  two 
articles  published  in  the  Quarterly  Journal  of 
Economics  of  February  and  November,  1921. 
The  concluding  chapters,  which  deal  with  rail- 
road affairs  in  1920  and  1921,  contain  portions  of 
articles  written  in  1921  for  the  weekly  financial 
edition  of  the  New  York  Evening  Post.  Included 
as  an  appendix  is  an  article  which  appeared  in  the 
November,  1919,  number  of  the  Annals  of  the 
American  Academy  of  Political  and  Social 
Science. 

7 


8  AMERICAN  RAILROADS 

For  kind  permission  to  use  the  material  in  this 
form,  the  author  is  indebted  to  Professor  Frank 
W.  Taussig,  editor,  Quarterly  Journal  of  Eco- 
nomics ;  ]\rr.  Edwin  F.  Gay,  president,  New  York 
Evening  Post ;  and  Mr.  Clyde  L.  King,  editor.  The 
Annals  of  the  American  Academy  of  Political  and 
Social  Science. 

W.  J.  C. 
Cambridge,  Mass.,  July  31,  1922. 


CHAPTER  I 


INTRODUCTION 


WITHIN  the  next  six  years  the  United 
States  will  probably  celebrate  with  ap- 
propriate ceremony  the  centennial  of  the 
beginning  of  steam  railroads  in  this  country.  It 
was  on  July  4,  1828,  that  Charles  Carroll,  the  last 
surviving  signer  of  the  Declaration  of  Indepen- 
dence, laid  the  first  rail  of  the  Baltimore  &  Ohio 
Railroad.  ^'One  man's  life  formed  the  connect- 
ing link  between  the  political  revolution  of  the 
last  century  and  the  industrial  revolution  of  the 
present."* 

American  railroads,  then,  have  existed  for  three 
generations.  Broadly  speaking  it  may  be  said 
that  these  three  generations  coincide  with  three 
fairly  well-defined  periods  in  the  development  of 
public  policy  toward  railroads.  ^Frpm  1830  to  the 
Civil  War  period,  which  we  will  designate  as  the 
first  generation,  was  an  era  of  unrestrained  rail- 
road development.  The  general  public  was  not 
only  willing,  but  was  eager  to  see  expansion  in 
the  growing  network  of  railroad  lines.  ''Indeed, 
the  community  manifested  so  marked  an  eager- 
ness to  secure  railroad  transportation  that  the 
states'  attitude  toward  the  carriers  was  one  of 
liberality  and  encouragement."**     The  carriers 

*Sailroad  Transportation,  A.  T.  Hadley,  1885. 
**The  American  Eailroad  Problem,  I.  L.  Sharfman,  1921. 

0 


10  AMERICAN  RAILROADS 

were  almost  entirely  free  from  governmental  in- 
terference. Extensive  land  grants  and  financial 
aid  were  freely  given,  and  railroad  securities 
found  a  ready  market  on  favorable  terms. 

The  next  period,  from  the  end  of  the  Civil  War 
until  1887,  may  be  designated  as  the  second  gen- 
teration.  It  ushered  in  the  era  of  railroad  regula- 
tion by  individual  states.  Speculative  building, 
with  many  cases  of  financial  maladministration, 
unfair  discrimination  in  rates  and  service,  and 
ruinous  competition,  caused  a  reversal  of  public 
opinion.  Open  antagonism  took  the  place  of 
friendly  cooperation.  There  was  intense  resent- 
ment against  abuse  of  power  exercised  by  railroad 
executives,  and  bitter  criticism  of  rates  which 
were  regarded  as  excessively  high.  This  spirit 
of  antagonism  was  greatest  in  the  central  agricul- 
tural states  and  was  crystallized  early  in  the  70 's 
in  the  drastic  legislation  known  as  the  Granger 
Laws. 

These  laws,  however,  were  ineffectual  as  per- 
manent remedies.  In  most  cases  they  were  over- 
turned on  appeal  to  the  Supreme  Court  of  the 
United  States.  Yet  the  Granger  Movement, 
while  not  solving  the  problems  of  discrimination 
in  rates  and  service  or  of  financial  manipulation, 
acted  as  a  check  upon  the  abuse  of  power,  and 
served  to  make  clear  the  need  of  more  effective 
public  regulation  on  a  national  scale.  It  served 
also  as  a  brake  upon  speculative  railroad  build- 
ing. 

The  following  period,  or  the  third  generation, 
embracing  the  years  1887  to  1917,  may  be  desig- 


AMERICAN  RAILROADS  11 

nated  as  the  first  stage  of  federal  railroad  regula- 
tion. It  began  with  the  passage  of  the  original 
(1887)  Act  to  Eegulate  Commerce.  This  Act 
created  the  Interstate  Commerce  Commission  and 
clothed  it  with  powers  intended,  among  other 
things,  to  insure  just  and  reasonable  rates,  to  pre- 
vent unfair  discrimination  in  rates  and  service, 
and  to  check  financial  mismanagement.  As  it  be- 
came apparent  that  the  Commission,  under  the 
original  law,  could  not  effectively  bring  about  all 
that  was  sought,  successive  amendments  were  en- 
acted, each  strengthening  the  Commission's  au- 
thority. 

With  the  passage  of  the  amendments  of  1906  and 
1910,  the  powers  of  the  Commission  over  rates  and 
service  were  fairly  complete.  It  could  also 
exercise  substantial  control  over  accounting  and 
financial  organization. 

Up  to  the  middle  of  the  decade  1900  to  1910,  the 
steady  growth  in  traffic  and  the  economies  from 
improved  operating  methods,  enabled  the  rail- 
roads to  absorb  the  burden  of  higher  wages  and 
other  costs,  and  to  move  the  traffic  at  lower  rates 
per  ton-mile.  The  net  income  was  sufficient  to 
pay  a  reasonable  rate  of  return  on  securities  and 
to  attract  new  capital  when  needed.  New  lines, 
additional  trackage  and  enlarged  or  improved 
facilities  could  be  provided  where  justified  by 
traffic  demands.  The  long-time  policy  of  the  typi- 
cal conservatively  managed  road  was  to  *' plough 
in"  a  part  of  its  net  income.  The  aim  was  to  keep 
the  capacity  of  the  railroad  properties  well  ahead 
of  traffic  demands,  and  to  insure  an  ample  factor 
of  safety  so  that  the  larger  business  of  next  year 


12  AMERICAN  RAILROADS 

might  be  handled  expeditiously  and  economically. 
The  statistics  of  ton-miles  and  passenger-miles 
over  a  long  series  of  years  indicate  that  the  normal 
growth  in  freight  traffic  is  an  increase  of  100% 
every  12  or  13  years,  and  that  the  passengers 
carried  one  mile  double  every  15  or  16  years.     In 
order  that  the  normal  growth  might  be  taken  care 
of  satisfactorily  it  was  necessary  to  construct 
new  lines,  to  increase  main-line  trackage,  to  in- 
crease the  number  and  capacity  of  sidings,  to  re- 
vise   and    enlarge    terminals,  enginehouses    and 
shops,  and  to  purchase  new  locomotives  and  cars 
of   greater    capacity    and   better  design.     These 
heavier  units  of  rolling  stock  and  motive  power  re- 
quired bridge  renewals  and  the  enlargement  of 
clearances  m  tunnels,  cuts  and  overhead  struc- 
tures.    In  the  interest  of  train  service  economies 
r  it  was  desirable  to  reduce  grades  and  to  eliminate 
V     curvature ;  and  in  many  cases  the  capacity  of  the 
*^  7   roads  was  increased  and  their  operating  costs 
(    lowered   by    constructing    cut-offs    or    otherwise 
^  shortening  the  line  haul. 

Although  the  greater  part  of  these  improve- 
ments was  financed  by  the  sale  of  new  securities, 
it  was  believed  to  be  sound  policy  to  take  a  part  of 
the  capital  out  of  income,  so  as  to  keep  down  the 
capital  obligations.  Such  a  policy  was  possible 
on  the  typical  road  under  the  net  income  up  to  and 
during  the  greater  part  of  the  decade  which  ended 
with  1909.  But  with  the  enactment  of  the  amend- 
ments of  1906  and  1910,  which  gave  the  Interstate 
Commerce  Commission  the  power  to  fix  maximum 
rates  and  to  suspend  rates  initiated  by  the  car- 
riers,   the    inflexibility    of    the    rate    structure, 


AMERICAN  RAILROADS  13 

and  the  steadily  advancing  costs  in  operation, 
caused  net  income  to  shrink.  As  the  opportu- 
nities for  large-scale  economies  in  the  progressive 
development  in  the  art  of  transportation  grew 
less,  it  became  increasingly  difficult  to  absorb  the 
advances  in  wage  rates  and  the  increases  in  mate- 
rial costs. 

About  that  time  (1910)  the  railroads  began 
their  efforts  to  convince  the  Interstate  Commerce 
Commission  that  higher  rates  were  justified  by 
changed  economic  conditions,  but  they  were  un- 
successful. The  net  income  continued  to  drop 
and  in  1914,  when  the  World  War  began,  the  rail- 
roads were  in  serious  financial  difficulties.  The 
loss  in  earning  power  had  affected  their  credit. 
Railroad  securities,  particularly  new  issues  of 
stock,  were  no  longer  marketable  on  favorable 
terms,  and  issues  of  new  or  refunding  bonds  car- 
ried higher  interest  rates.  Net  income  was  not 
sufficient  to  justify  appropriations  for  better- 
ments. Many  of  the  strong  roads  reduced  their 
dividend  rate  and  many  of  the  weaker  roads  sus- 
pended all  dividend  payments.  Another  group 
of  the  weak  lines  began  to  default  in  the  payment 
of  interest  on  funded  debt.  New  construction  prac- 
tically ceased.  Improvements  were  curtailed. 
Orders  for  new  locomotives  and  cars  were  far  be- 
low the  normal  rate  of  renewals. 

Such  was  the  situation  Avhen  the  World  War 
began  in  1914.  In  that  and  in  the  following  year 
many  weak  roads  were  forced  to  the  wall.  The 
total  railroad  mileage  in  the  hands  of  receivers 


14  AMERICAN  RAILROADS 

in  1915  comprised  one-sixth  of  the  total  in  the 
United  States. 

The  financial  catastrophe  which  threatened  to 
overcome  the  strong  as  well  as  the  weak  roads 
was  averted  by  the  large  volume  of  traffic  caused 
by  orders  from  the  Allies  for  munitions  and  other 
war  supplies.  These  orders  brought  feverish  in- 
dustrial activity  and  a  large  movement  in  raw  ma- 
terials as  well  as  in  finished  products.  As  a  re- 
sult, railroad  earnings,  both  gross  and  net,  in 
1916  exceeded  all  previous  records. 

For  the  moment  the  ultimate  financial  needs 
were  pushed  into  the  background.  The  heavily 
increased  tonnage  brought  additional  revenues 
which  absorbed  the  further  advances  in  wages 
and  materials,  but  under  the  stress  of  the  over- 
load, and  in  view  of  high  construction  costs,  little 
could  be  done  toward  providing  the  additional 
facilities  and  equipment  which  normally  would 
have  been  provided  in  the  years  1910  to  1915. 

And  so  it  came  to  pass  that  when  this  country 
entered  the  war  in  April,  1917,  our  transporta- 
tion system,  already  taxed  nearly  to  its  traffic 
carrying  limit,  had  to  assume  heavier  burdens. 
How  the  problem  was  met  at  the  time  is  described 
in  Chapter  IT.  Suffice  it  to  say  here  that  in  1917, 
under  the  Railroads'  War  Board  form  of  volun- 
tary unification,  the  initial  load  was  satisfactorily 
carried.  Late  in  1917,  however,  difficulties  were 
encountered  which  justified  complete  unification 
under  federal  control.  That  form  of  control  con- 
tinued until  March  1,  1920.     Chapters  II  to  XX 


AMERICAN  RAILROADS  16 

are  devoted  to  a  recital  of  the  organization,  meth- 
ods and  results  under  governmental  operation. 

During  1919,  while  Congress  was  deliberating 
upon  the  several  plans  for  the  post-war  solution 
of  the  railroad  problem,  the  demand  for  a  resump- 
tion of  private  management  was  overwhelming. 
Congress  summarily  dismissed  all  plans  looking 
toward  Government  operation  or  ownership  in 
any  form.  The  national  policy  finally  adopted, 
when  the  railroads  were  returned  to  their  owners 
for  private  operation,  is  expressed  in  the  Trans- 
portation Act  of  1920.  The  Act,  which  may  be 
said  to  mark  a  new  era  in  the  relations  between 
the  Government  and  the  railroads,  is  discussed  in 
Chapter  XXT. 

The  remaining  chapters  are  devoted  to  the  out- 
standing events  in  1920  and  1921,  the  two  years 
immediately  following  the  period  of  federal  con- 
trol, and  to  the  railroad  situation  as  it  existed  in 
July,  1922. 


CHAPTER  II 

THE  RAILROAD  SITUATION  DURING  THE 
DECADE  1906-1916 

IN  order  to  understand  the  railroad  situation 
during  and  directly  after  America's  partici- 
pation in  the  World  War,  it  is  necessary  to 
review  the  events  which  preceded  the  critical 
period  from  April,  1917,  (when  the  United  States 
declared  war  against  Germany),  to  March,  1920, 
(when  the  railroads  were  restored  to  their  owners 
after  26  months  of  operation  by  the  Federal  Gov- 
ernment). That  period  of  three  years  is  marked 
by  as  many  fundamental  changes  in  railroad  ad- 
ministration. First  came  the  voluntary  unifica- 
tion of  all  railroads  and  the  attempt  on  the  part 
of  the  individual  carriers  to  act  together  in  the 
war  emergency  as  one  system  under  the  direction 
of  a  Railroads'  War  Board  invested  by  the  car- 
riers with  power  to  suspend  and  disregard  indi- 
\'idual  and  competitive  interests.  This  voluntary 
unification  lasted  from  April  11,  1917,  to  Decem- 
ber 28,  1917,  or  almost  9  months.  The  second 
change  was  the  compulsory  unification  of  all  rail- 
roads under  federal  control,  lasting  26  months 
(until  March  1,  1920).  The  third  came  mth 
the  passage  of  the  Transportation  Act  of  1920, 
which  restored  the  railroads  to  private  manage- 
ment and  fundamentally  modified  the  policy  of 
public  regulation. 

16 


AMERICAN   RAILROADS  17 

Critics  of  private  railroad  management  state 
that  the  railroads  ''broke  down"  in  1917,  just  at 
the  time  when  transportation  efficiency  was  most 
vitally  necessary.  If  it  is  true  that  the  railroads 
then  failed  in  the  emergency,  we  are  as  much  in- 
terested now  in  the  causes  of  the  failure  as  in 
the  failure  itself.  To  get  at  the  causes  it  is  nec- 
essary to  trace  the  events  of  the  decade  preced- 
ing the  period  of  the  war. 

Until  a  few  years  prior  to  our  entrance  into  the 
war,  it  had  been  the  traditional  policy  of  the  typi- 
cal American  railroad  to  keep  its  equipment  and 
facilities  well  ahead  of  the  demands  of  growing 
traffic.  The  cost  of  additional  or  improved  equip- 
ment, and  of  additional  or  enlarged  terminals, 
trackage,  and  other  physical  facilities,  was  met 
either  from  current  income  or  from  the  sale  of 
new  securities.  As  a  result  of  this  policy,  the 
typical  railroad  was  always  equipped  to  handle 
its  growing  business  economically.  There  was  an 
ample  factor  of  safety,  so  that  the  ever-increasing 
volume  of  tonnage  and  passengers  could  be  han- 
dled expeditiously  and  without  congestion. 

The  ability  to  continue  this  policy  depended 
upon  net  earnings  sufficient  to  insure  ample 
credit.  So  long  as  net  earnings  justified  appro- 
priations for  improvements,  or  were  sufficient  to 
assure  the  investor  in  new  securities,  there  was  no 
difficulty  in  keeping  pace  with  expanding  traffic. 
In  most  cases  the  earnings  from  the  additional 
traffic  sufficed  to  pay  a  reasonable  return  upon  the 
additional  investment.  The  law  of  increasing  re- 
turns had  its  full  application  as  the  improve- 


18  AMERICAN  RAILROADS 

ments  or  enlargements  in  equipment  and  facilities 
made  it  possible,  with  the  larger  traffic,  to  oper- 
ate at  lower  unit  costs.  These  lower  unit  costs 
enabled  the  railroads  to  absorb  the  gradually  in- 
creasing wage  rates  or  other  additional  operating 
expenses  and  taxes,  and  because  investors  had 
confidence  in  railroad  securities  they  were  easily 
marketable. 

This  situation  continued  as  long  as  net  earn- 
ings were  sufficient.  But  the  gradual  tendency  of 
higher  operating  costs,  coupled  with  a  national 
and  state  policy  of  regulation  which  tended  to 
reduce  rather  than  to  increase  rates,  soon  had  the 
effect  of  reducing  net  income.  The  turning  point 
came  about  1906,  or  coincident  with  the  passage  of 
the  Hepburn  amendment  to  the  Interstate  Com- 
merce Act.  This  amendment,  mth  its  power  to 
prescribe  maximum  charges,  gave  the  Commis- 
sion complete  control  over  rates.  The  1910 
amendment  went  a  step  further  in  giving  the 
Commission  the  power  to  suspend  rates.  The 
period,  too,  was  marked  by  unusual  activity  on 
the  part  of  state  commissions  and  state  legis- 
latures. Many  new  laws  were  passed,  nearly  all 
of  which  either  reduced  revenues  or  increased 
expenses.  The  difficulty  was  aggravated  by  a 
conflict  of  regulating  laws  as  between  the  states 
themselves,  and  as  between  the  states  and  the 
Interstate  Commission. 

Coupled  with  these  adverse  influences  on  net 
earnings  came  greater  activity  on  the  part  of  the 


AMERICAN  RAILROADS  19 

railroad  labor  organizations  in  their  demands  for 
higher  wages.  While  the  steadily  growing  bur- 
dens of  increased  operating  expenses  and  taxes 
impinged  upon  and  forced  net  income  downward, 
the  railroads  were  unable  to  convince  the  Gov- 
ernment regulating  authorities  that  rates  should 
be  increased  in  a  degree  which  would  maintain  net 
income.  Consequently  it  became  difficult  to  ap- 
propriate money  for  betterments,  and  during  the 
decade  which  preceded  our  entrance  in  the  World 
War  the  program  of  extensions,  enlargements, 
and  improvements  was  far  below  the  normal  rate 
of  earlier  years.  Not  only  were  the  railroads  as  a 
whole  unable  to  raise  the  funds  necessary  to 
equip  themselves  for  prospective  increases  in 
traffic,  but  many  were  in  such  financial  straits 
that  they  found  themselves  unable  to  maintain 
their  solvency.  The  year  1915  marked  the  peak 
of  railroad  receiverships.  In  September  of  that 
year  approximately  42,000  miles,  or  about  one- 
sixth  of  the  entire  railroad  mileage  of  the  coun- 
try was  in  the  hands  of  the  courts. 

Among  the  bankrupt  properties  were  included 
the  following  important  railroads : 

Atlanta,  Birmingham  &  Atlantic 645  miles 

Chicago  &  Eastern  Illinois 1282  " 

Cincinnati,  Hamilton  &  Dayton 1015  " 

Chicago,  Rock  Island  &  Pacific 7847  " 

Colorado   Midland 338  " 

International  &  Great  Northern 1106  ' ' 

Missouri,  Kansas  &  Texas 3865  ' ' 

Missouri  Pacific   7285  " 

Pere   Marquette 2322  " 


20  AMERICAN   RAILROADS 

St.  Louis  &  San  Francisco 4747  miles 

Toledo,  St.  Louis  &  Western 450     " 

Wabash    2514    " 

Western    Pacific 946     " 

Wheeling  &  Lake  Erie 459     " 

Besides  these  14  important  railroads,  68  smaller 
properties  were  then  in  the  hands  of  the  courts. 
The  combined  mileage  of  the  82  roads  was  41,988, 
and  their  total  capitalization  amounted  to  $2,264,- 
002,178.* 

Under  such  strained  financial  conditions  it  was 
Ijut  natural  that  railroad  development  should  be 
halted.  New  construction  practically  ceased.  The 
mileage  of  new  railroad  built  in  that  year  was  less 
than  in  any  year  since  the  period  of  the  Ci\dl  War. 
The  figures  speak  for  themselves : 

Miles  of  New  First  Track  Built  During  Decade 

1906-1915** 

Year  Miles 

1906  5,623 

1907  5,212 

1908  3,214 

1909  3,748 

1910  4,122 

1911  3,066 

1912  2,997 

1913  3,071 

1914  1,532 

1915  933 

The  slowing  up  in  railroad  development  was 
reflected  also  in  the  statistics  relating  to  new 

*Faihvay  Age  Gazette,  Oct.  1,  1915,  p.  587,  and  Oct.  15,  1915, 
p.   676. 

""Railway  Age  Gazette,  Dec.  31,  1915,  p.  1247. 


AMERICAN   RAILROADS  21 

equipment.  Orders  for  new  loconiotives  and  cars 
dropped  to  an  nnprecedented  low  level,  and  dras- 
tic retrenchment  and  curtailment  in  service  were 
everywhere  in  evidence. 

The  spokesmen  of  the  railroads  made  earnest 
and  continued  appeals  in  an  effort  to  arouse  the 
interest  of  the  public  and,  through  the  public,  the 
interest  of  the  governmental  regulating  authori- 
ties in  the  seriousness  of  the  railroad  situation. 
Among  these  spokesmen  none  presented  the  rail- 
road case  with  more  vigor  or  with  more  vision 
than  the  late  James  J.  Hill.  For  several  years 
before  the  World  War  he  foresaw  the  ultimate 
effect  of  the  slowing  down  of  railroad  develop- 
ment, and  he  sounded  a  note  of  warning,  predict- 
ing that  national  embarrassment  would  come.  He 
plead  for  a  policy  of  regulation  which  would  make 
it  possible  to  invest  one  billion  dollars  annually 
in  railroad  facilities,  particularly  in  terminals^. 
But  the  warning  and  the  plea  were  not  heeded.* 
The  railroads  were  able  to  spend  but  a  fraction 
of  the  sum  which  he  regarded  as  necessary.  Con- 
sequently the  natural  increase  in  traffic  (ton-miles 
double  about  every  12  or  13  years)  soon  over- 
took and  exceeded  the  capacity  of  the  railroads 

*"The  inadequacy  of  our  railroad  system  to  meet  the  demands 
of  our  rapidly  increasing  population  and  the  volume  of  transpor- 
tation that  our  foreign  trade  demands,  and  to  "le^t  the  require- 
ments of  a  state  of  war  which  we  face,  is  startling.  We  have  had 
many  warnings  from  railroad  men  as  to  what  would  occur  under 
conditions  like  the  present-  Their  warnings  are  now  bemg  vindi- 
cated. The  embargoes  which  the  railroads  have  been  obhgedto 
impose  on  legitimate  shipments  are  a  mathematical  demonstration 
on  how  far  short  is  our  arterial  system  of  interstate  commerce. 
(Ex-president  Taft,  in  address  at  Johns  Hopkins  University,  Feb. 
22,   1917.) 


22  AMERICAN  RAILROADS 

to  give  satisfactory  service.    The  point  of  traffic 
saturation  was  reached. 

This  was  the  situation  in  1915,  when  the  flood  of 
extra  traffic  incident  to  the  great  war  broke  upon 
the  railroads.  They  were  not  prepared  for  the 
overload,  but  met  the  emergency  with  resource- 
fulness. The  year  1916  brought  a  further  in- 
crease in  traffic  as  the  orders  for  war  materials 
to  be  shipped  abroad  grew  in  volume.  Then  came 
our  declaration  of  war  against  the  Central 
Powers  in  April,  1917,  and  with  it  the  mobilization 
of  the  army  and  navy,  the  construction  of  can- 
tonments, the  beginning  of  the  ship  building  and 
aircraft  programs,  and  the  large  scale  produc- 
tion of  ammunition  and  supplies  of  all  kinds  for 
our  fighting  forces. 

Having  in  mind  the  fundamental  fact  that  dur- 
ing the  10  years  immediately  preceding  the  date 
of  our  participation  in  the  World  War  the  rail- 
roads of  the  country  had  been  unable  to  earn  net 
income  sufficient  for  them  to  maintain  their  credit 
and  to  attract  new  capital  for  needed  enlarge- 
ments and  improvements  in  facilities,  and  that  the 
abnormal  traffic  incident  to  war  conditions  was  so 
great  as  to  exceed  the  capacity  of  their  lines  and 
terminals,  it  was  inevitable  that  congestions  and 
delays  should  occur.  Such  a  result,  particularly 
on  the  lines  serving  the  eastern  seaboard,  where 
most  of  the  additional  traffic  centered,  could  not 
be  avoided. 


CHAPTER  III 

THE  RAILROADS'  WAR  BOARD 

THE  gravity  of  the  situation  was  fully  real- 
ized by  the  railroad  executives,  and  when  we 
entered  the  war  they  acted  quickly  in  an 
effort  to  meet  the  emergency.  It  will  be  recalled 
that  in  1914,  almost  immediately  after  England 
declared  war  against  Germany,  the  British  Gov- 
ernment took  over  the  railroads  and  operated 
them  through  a  board  consisting  of  the  general 
managers  of  the  principal  railroads.  When  the 
United  States  became  associated  with  the  Allies, 
a  move  similar  to  that  taken  by  the  British  Gov- 
ernment was  anticipated  by  our  railroad  execu- 
tives, but  they  decided  to  take  the  initiative  them- 
selves. Within  five  days  after  our  declaration  of 
war  against  Germany  the  Eailroads'  War  Board 
was  organized  under  a  resolution  signed  by  the 
chief  executive  of  practically  ever}^  railroad  in 
the  United  States.  The  resolution  bound  the 
railroads  individually  to  coordinate  their  opera- 
tions during  the  war  within  a  continental  rail- 
road system,  ''merging  during  such  period  all 
their  merely  individual  and  competitive  activities 
in  the  effort  to  produce  a  maximum  of  transporta- 
tion eJQficiency."  The  complete  text  of  the  resolu- 
tion follows. 

23 


/ 


24  AMERICAN  RAILROADS 

'" Resolved,  That  the  railroads  of  the  United  States, 
acting  through  their  chief  executive  officers  here  and 
now  assembled,  and  stirred  by  a  high  sense  of  their  op- 
portunity to  be  of  the  greatest  service  to  their  country 
in  the  present  national  crisis,  do  hereby  pledge  them- 
selves, with  the  Government  of  the  United  States,  with 
the  Governments  of  the  several  States  and  one  with 
another,  that  during  the  present  war  they  will  coor- 
dinate their  operations  in  a  continental  railway  system, 
merging  during  such  period  all  their  merely  individual 
and  competitive  activities  in  the  effort  to  produce  a 
maximum  of  national  transportation  efficiency.  To  this 
end  they  hereby  agree  to  create  an  organization  which 
shall  have  general  authority  to  formulate  in  detail  and 
from  time  to  time  a  policy  of  operation  of  all  or  any  of 
the  railways,  which  policy,  wlicii  and  as  announced  by 
such  temporary  organization,  shall  be  accepted  and 
earnestly  made  effective  by  the  several  managements 
of  the  individual  railroad  companies  here  represented." 

The  personnel  of  the  Executive  Committee  of 
the  War  Board  was  as  follows : 

Fairfax  Harrison    (Chairman),   President,   Southern 
Railway. 

Howard  Elliott,  Chairman,  Northern  Pacific  Rail- 
way. 

Hale    Holden,    President,    Chicago,    Burlington   & 
Quincy  R.  R. 

Julius   Kruttschnitt,    Chairman,    Southern    Pacific 
Co. 

Samuel  Rea,  President,  Pennsylvania  R.  R. 

While  the  controlling  motive  was  one  of  patri- 
otic endeavor  to  make  the  railroads  the  greatest 
possible  aid  to  the  Government  in  prosecuting  the 
war,  there  was  undoubtedly  a  desire  on  the  part 
of  many  railroad  executives  to  demonstrate  to  the 
public  that  American  railroad  men  under  private 
ownership  and  control  of  railroads  could  do  their 


AMERICAN  RAILROADS  25 

part  iu  the  emergency  without  formal  Goverument 
action  like  that  taken  in  England.  Such  a  dem- 
onstration, if  successful,  would  curb  the  activities 
of  the  growing  number  of  people  who  then  looked 
with  favor  upon  Government  ownership  as  the 
ultimate  solution  of  the  railroad  problem,  and 
who  advocated  the  immediate  taking  of  the  rail- 
roads as  a  war  measure. 

By  the  terms  of  the  agreement,  which  was 
brought  about  by  a  special  committee  of  the 
American  Railway  Association  (the  details  of  the 
plan  had  been  worked  out  several  weeks  before 
we  declared  war),  the  operations  of  all  railroads 
as  a  continental  system  were  to  be  directed  by  the 
executive  committee  of  the  Railroads'  War 
Board,  to  whom  the  chief  executive  of  each  rail- 
road companj^  had  formally  delegated  authority 
to  merge  competitive  activities  and  to  make  com- 
mon use  of  facilities  and  equipment.  The  activi- 
ties of  the  Railroads'  War  Board  were  tied  into 
the  activities  of  the  Council  of  National  Defense 
by  Daniel  Willard  (President,  Baltimore  &  Ohio 
R.  R.),  a  member  of  the  Council  who  became  ex 
officio  a  member  of  the  War  Board,  and  were 
similarly  coordinated  with  the  work  of  the  Inter- 
state Commerce  Commission  through  Commis- 
sioner Edgar  E.  Clark.  The  two  ex  officio  members 
participated  in  the  deliberations  of  the  Railroads' 
War  Board  and  in  the  shaping  of  its  poli- 
cies. There  was  also  active  and  continuous  co- 
operation between  the  Railroads'  War  Board  and 
the  army  and  navy,  and  tlie  Food  and  Fuel  Ad- 
ministrations, and  points  of  contact  were  estab- 


26  AMERICAN  RAILROADS 

lished   with  practically   all   other   governmental 
agencies. 

Each  railroad  individually  was  operated  by  its 
chief  executive  under  instructions  from  the  ex- 
ecutive committee  of  the  Board.  Outside  of 
freight  car  utilization  and  troop  movements,  an 
excess  of  centralized  control  of  detail  was 
avoided.  The  executive  committee  exercised  its 
control  through  regional  committees  presided 
over  by  the  following  chairmen : 

Region  Chairman 

Northeastern  J.  H.  Hustis,  Receiver, 

Boston  &  Maine  R.  R. 

Eastern  L.  F.  Loree,  President, 

Delaware  &  Hudson  Co. 

Southeastern  W.  J.  Harahan,  President, 

Seaboard  Air  Line. 

Central  R.  H.  Aishton,  President, 

Chicago  &  Northwestern  Ry. 

Southern  W.  B.  Scott,  President, 

Southern  Pacific  Lines. 

Western  Wm.  Sproule,  President, 

Southern  Pacific  Lines. 

These  chairmen,  with  the  executive  committee 
and  the  ex  officio  members,  made  up  the  complete 
Board.  As  regional  executives  they  exercised  jur- 
isdiction in  territories  which  corresponded  with 
the  five  army  departments,  namely,  the  North- 
eastern, the  Eastern,  the  Southeastern,  the  Cen- 
tral, and  the  Western  districts  with  their  respec- 


AMERICAN  RAILROADS  27 

tive  chairmen  for  the  Eailroads'  "War  Board  and 
generals  in  charge  of  the  army  departments.  At 
each  army  headquarters  and  at  each  cantonment, 
camp  or  mobilization  point  (112  in  all)  a  represen- 
tative of  the  Railroad  Board  was  stationed  to  in- 
sure prompt  and  effective  cooperation  between  the 
army  authorities  and  the  railroads,  and  during 
the  months  from  July  to  December,  1917,  the 
railroad  transportation  needs  of  the  army  were 
met  in  a  manner  which  brought  nothing  but  praise 
from  the  army  authorities. 

In  his  annual  report  for  1917,  Secretary  of 
War  Baker  made  this  reference  to  railroad  co- 
operation : 

"In  this  general  connection  it  seems  appropriate  to 
refer  to  the  effective  cooperation  between  the  depart- 
ment and  the  transportation  agencies  of  the  country. 
For  a  number  of  years  the  Quartermaster  General's  De- 
partment has  maintained  close  relations  with  the  execu- 
tives of  the  great  railway  systems  of  the  country.  In 
February,  1917  a  special  committee  of  the  American 
Railway  Association  was  appointed  to  deal  with  ques- 
tions of  national  defense,  and  the  cooperation  between 
this  committee  and  the  department  has  been  most  cor- 
dial and  effective,  and  but  for  some  such  arrangement 
the  great  transportation  problem  would  have  been  in- 
soluble. I  am  happy,  therefore,  to  join  the  Quarter- 
master General  in  pointing  out  the  extraordinary  service 
rendered  by  the  transportation  agencies  of  the  country, 
and  I  concur  also  in  his  statement  that  of  those  who  are 
now  serving  the  nation  in  this  time  of  stress,  there  are 
none  who  are  doing  so  more  wholeheartedly,  unselfishly 
and  efficiently  than  the  railroad  officials  who  are  en- 
gaged in  this  patriotic  work." 

While  the  first  energies  of  the  Railroads'  Board 
were  devoted  to  satisfying  the  demands  of  the 


28  AMERICAN   RAILROADS 

army  and  navj^  efforts  were  made  to  take  care 
of  the  needs  of  other  branches  of  the  Government, 
and  to  impose  the  minimum  of  hardship  upon  the 
civilian  population.  The  executive  committee, 
the  regional  chairmen,  and  the  several  sub-com- 
mittees of  the  Board  did  their  best  to  bring  about 
complete  unification  of  facilities  and  equipment 
and  to  eliminate  the  ''merely  individual  and  com- 
petitive activities."  Much  of  merit  was  accom- 
plished by  the  Commission  on  Car  Service  in  its 
efforts  "to  make  one  freight  car  do  the  work  of 
two."  Considerable  progress  was  made  in  bring- 
ing about  the  joint  use  of  terminals  and  running 
tracks,  in  reducing  the  volume  of  traffic  moving 
\'ia  circuitous  routes,  and  in  curtailing  superflu- 
ous passenger  trains  established  for  competitive 
reasons.*  The  statistical  records  of  April  to  De- 
cember, 1917  show  commendable  improvements 
in  the  efficient  utilization  of  locomotives  and 
freight  cars,  and  the  inconvenience  to  the  civilian 
travelers  was  much  less  than  that  which  was  im- 
posed in  England. 

Yet  the  results  as  a  whole  were  not  satisfactory 
in  the  latter  part  of  1917.  Freight  congestions 
began  to  occur  on  the  lines  serving  the  Atlantic 
seaboard.  Yards,  sidings,  and  even  running 
tracks  were  clogged  with  cars.  The  freight  ser- 
vice as  a  whole  on  the  lines  between  Chicago,  Pitts- 
burgh, and  the  Atlantic  ports  was  badly  demoral- 
ized. 

*The  reduction  in  passenger  service  (estimated  at  20,000,000 
train-miles  per  year)  -was  mainly  on  the  roads  east  of  Chicago. 
Relatively  little  was  done  on  the  transcontinental  lines.  Their 
failure  to  act  may  be  traced  to  the  influence  of  competition. 


AMERICAN   RAILROADS  29 

One  reason  for  these  congestions  is  found  in 
the  failure  of  the  railroads  to  keep  up  their  pro- 
grams of  enlargement  and  improvement,  and  to 
maintain  their  usual  scale  of  additions  to  the 
equipment  of  locomotives  and  freight  cars.  The 
small  factor  of  safety  that  remained  in  1917  was 
exceeded,  and  the  flow  of  traffic  at  strategic  points 
was  impeded.  It  is  an  axiom  of  transportation 
that  the  capacity  of  a  road  as  a  whole  is  limited 
by  the  capacity  at  strategic  points.  The  "neck 
of  the  bottle"  may  be  the  receiving  or  final  ter- 
minals, it  may  be  the  intermediate  yards,  it  may 
be  the  engine  terminals,  it  may  be  the  supply 
or  the  condition  of  locomotives,  it  may  be  the 
number  of  experienced  train  crews,  or  it  may  be 
the  capacity  of  the  management  to  cope  with  new 
problems.  In  this  case  the  principal  difficulties 
were  found  in  the  terminals  at  Pittsburgh,  Bal- 
timore, Philadelphia,  and  New  York.  The  great 
bulk  of  the  additional  war  traffic  from  other  sec- 
tions of  the  country  was  required  to  move  through 
those  terminals  and  the  railroads  had  also  to 
supply  the  raw  materials  to  and  take  the  finished 
products  from  the  many  manufacturing  plants  in 
Pennsylvania,  Delaware,  New  Jersey,  New  York, 
and  the  New  England  states. 

The  failure  to  control  the  flow  of  export  traffic 
was  the  second  cause  of  the  congestion.  Freight 
for  export  was  accepted  without  regard  to  the 
capacity  of  the  available  ships.  Part  of  the  war 
materials  for  the  Allies  was  ordered  from  Amer- 
ican manufacturers  under  contracts  which  pro- 


30  AMERICAN  RAILROADS 

vided  that  a  large  percentage  of  the  invoice  would 
be  paid  as  soon  as  the  materials  were  loaded  on 
cars.*  The  profits  on  these  contracts  were  large. 
The  traffic  departments  of  the  railroads  were 
eager  to  get  the  tonnage.  There  was,  therefore, 
every  inducement  to  load  the  materials  into  the 
cars  at  the  earliest  possible  moment.  The  result 
w^as  that  the  export  tonnage  on  the  rails  very 
much  exceeded  the  capacity  of  the  ships,  and  the 
cars  containing  the  excess  were  held  for  months 
at  a  time.  If  something  like  the  permit  system 
which  was  adopted  later  by  the  United  States 
Railroad  Administration  had  been  put  into  effect, 
or  if  the  Railroads'  War  Board  had  been  able  to 
curb  the  spirit  of  competition  which  apparently 
blinded  the  traffic  and  executive  departments  of 
the  railroads  to  the  obvious  consequences,  the  flow 
of  this  traffic  might  have  been  controlled  at  the 
source  and  the  crisis  might  have  been  avoided. 
As  the  trouble  developed  at  the  seaports  the  cars 
backed  up  and  filled  the  intermediate  yards.  Then 
it  affected  the  large  producing  centers  at  and  east 
of  Pittsburgh.  Then  it  backed  up  to  Chicago  and 
the  Mississippi  River  points.  Freight  cars  held 
weeks  and  months  under  load  were  not  released 
in  time  to  be  returned  for  new  loads,  and  a  car 
shortage  resulted.  Efforts  to  pick  out  certain 
cars  from  the  accumulation  added  to  the  delay 
and  confusion. 

*This  applied  particularly  on  materials  for  Russia.  The  break- 
down in  that  country  left  vast  stores  of  materials  on  cars  at  both 
the  Atlantic  and  the  Pacific  seaports. 


AMERICAN  RAILROADS  31 

The  original  Act  to  Eegulate  Commerce  (1887) 
provided  that  the  railroads,  in  time  of  war,  should 
give  preference  and  precedence  over  all  other 
traffic  to  the  movement  of  troops  and  materials 
of  war,  and  should  adopt  every  means  within  their 
control  to  facilitate  and  expedite  military  traffic. 
Under  this  authority  each  branch  of  the  Govern- 
ment insisted  upon  priority  in  the  movement  of 
its  freight,  but  there  was  no  effective  agency  for 
coordinating  these  demands.  As  the  Government 
freight  made  up  such  a  large  part  of  the  total 
traffic  of  the  eastern  roads,  and  as  nearly  every 
department  pressed  for  special  priority  for  its 
cars,  the  situation  became  one  of  demoralization. 
It  was  stated  that  on  one  day  in  the  latter  part  of 
1917  a  count  of  the  eastward-bound  loaded  cars 
on  the  Pennsylvania  Railroad  east  of  Pittsburgh 
indicated  that  something  like  80%  were  marked 
for  priority.  Here  was  a  third  reason  for  the 
transportation  crisis. 

Still  another  important  factor,  already  referred 
to  in  connection  with  the  export  situation,  was  the 
failure  of  the  Railroads'  War  Board  to  put  an 
effective  curb  on  competitive  influences.  This  was 
but  natural.  Railroad  officials  had  been  brought 
up  in  an  atmosphere  of  competition,  and  our  na- 
tional policy  of  regulation  is  predicated  upon 
unhampered  competition.  The  anti-pooling  and 
the  anti-trust  laws  are  examples  of  legislation  for 
enforcing  competition.  In  fact,  there  was  some 
fear  that  the  Attorney  General  might  question 
the  legality  of  the  Railroads'  War  Board,  and 


32  AMERICAN  RAILROADS 

there  was  uncertainty  as  to  how  long  it  would  con- 
tinue to  function.  A  railroad  executive  with  a 
jealous  regard  for  the  interests  of  his  stock- 
holders had  some  justification  for  hesitating  to 
give  up  something  which  might  permanently  bene- 
fit a  natural  rival  and  permanently  affect  ad- 
versely the  value  of  his  property.  These  inci- 
dents in  the  main  attached  to  traffic  relations; 
they  had  little  bearing  upon  the  strictly  operating 
features. 


CHAPTER  IV 

COMPULSORY  UNIFICATION  UNDER 
FEDERAL  CONTROL 

BY  December,  1917,  the  railroad  situation  had 
become  acute.  There  was  much  conjecture 
as  to  what  would  be  done.  The  Interstate 
Commerce  Commission,  in  a  special  message ^  to 
Congress,  recommended  that  complete  unification 
of  the  railroads  should  be  eifected,  either  by  the 
carriers  themselves,  with  the  assistance  of  the 
Government,  or  by  their  operation  by  the  Presi- 
dent as  a  unit  during  the  war. 

''If  the  unification  is  to  be  effected  by  the  car- 
riers," said  the  Commission,  ''they  should  be 
enabled  to  eifect  it  in  a  lawful  way  by  the  suspen- 
sion, during  the  period  of  the  war,  of  the  opera- 
tion of  the  anti-trust  laws,  except  in  respect  of 
consolidations  and  mergers,  and  of  the  anti-pool 
provision  of  the  commerce  act.  In  addition  they 
should  be  provided  from  the  Government  treas- 
ury with  financial  assistance  in  the  form  of  loans, 
or  advances  for  capital  purposes,  in  such  amounts, 
on  such  conditions,  and  under  such  supervision 
of  expenditure  as  may  be  determined  by  appro- 
priate authority.*  *  *  If  the  other  alternative 
be  adopted,  and  the  President  operates  the  rail- 
roads as  a  unit  during  the  period  of  the  war,  there 
should  be  suitable  guarantee  to  each  carrier  of  an 

33 


34  AMERICAN  RAILROADS 

adequate  ammal  return  for  use  of  the  property, 
as  well  as  of  its  upkeep  and  maintenance  during 
operation;  with  provision  for  fair  terms  on  which 
improvements  and  betterments,  made  by  the 
President  during  the  period  of  his  operation, 
could  be  paid  for  by  the  carrier  upon  return  to  it 
of  the  property  after  the  expiration  of  that 
period." 

Commissioner  McChord,  in  a  dissenting  opin- 
ion, disagreed  with  the  majority  recommendation 
that  the  carriers  be  permitted  to  bring  about  com- 
plete unification  themselves  with  aid  from  the 
Government.  Instead  he  urged  that  "the  supreme 
arm  of  governmental  authority  is  essential," 
either  by  the  exercise  of  the  President's  author- 
ity to  operate  the  roads  or  by  the  creation  of  a 
single  governmental  administration  control.  In 
his  opinion  unification  of  diversified  governmental 
control  was  as  vital  as  unification  of  the  proper- 
ties. 

The  uncertainty  in  the  situation  was  dissolved 
by  the  President  on  December,  26,  1917,  when  he 
took  possession  of  the  railroads  of  the  country 
as  a  war  measure,  and  appointed  William  G. 
McAdoo,  Secretary  of  the  Treasury,  as  Director 
General  of  Railroads,  to  act  for  the  President. 

This  action  was  taken  under  the  authority 
granted  to  the  President  by  the  Army  Appropria- 
tions Act  of  August  29,  1916.  One  section  of  the 
Act  reads  as  follows: 

"The  President,  in  time  of  war,  is  empowered, 
through  the  Secretary  of  War,  to  take  possession 
and  assume  control  of  any  system  or  systems  of 


AMERICAN  RAILROADS  35 

transportation  or  any  part  thereof,  and  to  utilize 
the  same  to  the  exclusion  as  far  as  may  be  neces- 
sary of  all  other  traffic  thereon,  for  the  transfer 
or  transportation  of  troops,  war  materials  and 
equipment,  or  for  such  other  purposes  connected 
with  the  emergency  as  may  be  needful  or  desir- 
able." 

This  section  of  the  Act  was  probably  intended 
to  provide  for  an  emergency  which  might  arise  in 
connection  with  Mexico  in  1916.  At  the  time  of 
its  passage  there  was  no  immediate  prospect  of 
the  United  States  entering  the  European  war. 

The  President's  proclamation  and  his  letter  to 
Congress  are  such  important  historical  docu- 
ments that  they  are  reprinted  in  full  in  the  Ap- 
pendix. They  intimate  that  the  impelling  motive 
for  federal  control  was  one  of  finance.  ''Com- 
plete unity  of  administration  in  the  present  cir- 
cumstances involves  upon  occasions  and  at  many 
points  a  serious  dislocation  of  earnings,  and  the 
committee  (the  Eailroads'  War  Board)  was,  of 
course,  without  power  or  authority  to  rearrange 
charges  or  effect  proper  compensations  and  ad- 
justments of  earnings.  Several  roads  which  were 
willingly  and  with  admirable  public  spirit  accept- 
ing the  orders  of  the  committee  have  already 
suffered  from  these  circumstances  and  should  not 
be  required  to  suffer  further." 

The  tenseness  of  the  labor  situation  was  an- 
other ground  for  the  federalization  of  railroads. 
The  high  wages  paid  in  the  shipbuilding  yards, 
in  munition  plants,  and  in  other  work  on  war 
supplies,  and  the  sharp  advances  in  the  cost  of 


36  AMERICAN  RAILROADS 

living,  liad  caused  nmeli  unrest  among  railroad 
workers.  While  the  railroad  executives  were  de- 
liberating, there  were  threats  of  strikes,  and  the 
situation  during  the  latter  part  of  1917,  just  pre- 
ceding federal  control,  was  exceedingly  acute. 

But,  with  all  the  emphasis  placed  upon  matters 
of  finance  and  their  effect  upon  the  pressing  prob- 
lems of  enlargement,  upon  labor  unrest,  and  upon 
the  coordination  of  facilities,  other  reasons  were 
in  the  background.  One  of  the  great  obstacles  to 
complete  coordination  of  facilities  under  volun- 
tary agreement  among  the  railroads  was  law- 
made  rather  than  railroad-made.  The  things 
which  the  United  States  Railroad  Administration 
at  once  set  about  to  do  were  the  very  things  that 
the  railroads  as  private  corporations  were  for- 
bidden to  do  by  the  anti-trust  and  anti-pooling 
laws.  AVhat  the  Railroads'  "War  Board  had  done 
in  voluntary  unification  was,  in  important  re- 
spects, directly  contrary  to  those  laws,  and  the 
executives  knew  that  they  might  be  held  person- 
ally liable.  There  were  no  informal  ' '  understand- 
ings" that  under  the  emergency  conditions  the 
Department  of  Justice  would  overlook  the  situa- 
tion. On  the  contrary,  there  were  positive  indica- 
tions by  oflScial  inquiries  that  the  Attorney 
General  was  keeping  himself  informed  of  every 
move.  The  laws  obliged  railroads  to  compete; 
they  prohibited  the  pooling  of  facilities  and  earn- 
ings. Under  the  war  condftions  the  maximum  of 
transportation  production  depended  to  a  large 
extent  upon  effective  coordination,  which  required 
the  pooling  of  resources.    This  phase  of  the  situa- 


AMERICAN   RAILROADS  37 

tion  undoubtedly  had  weight  in  the  Government's 
decision  to  take  over  the  railroads.* 

The  President's  proclamation  of  December  26, 
1917  directed  Mr.  McAdoo,  as  Director  General 
of  Railroads,  to  take  possession  of  and  control, 
operate,  and  utilize  ''each  and  every  system  of 
transportation  and  appurtenances  thereof,"  and 
to  ''perform  the  duties  imposed  upon  him  through 
the  boards  of  directors,  receivers,  officers,  and 
employees  of  said  systems  of  transportation. 
Until  and  except  so  far  as  said  director  shall  from 
time  to  time  by  general  or  special  orders  other- 
wise provide,  the  boards  of  directors,  receivers, 
officers,  and  employees  of  the  various  transporta- 
tion systems  shall  continue  the  operation  thereof 
in  the  usual  and  ordinary  course  of  the  business 
of  common  carriers,  in  the  names  of  their  respec- 
tive companies."  The  Director  General's  first 
general  order  accordingly  directed  that  "all 
officers,  agents,  and  employees  .  .  .  may  con- 
tinue in  the  performance  of  their  present  regular 
duties,  reporting  to  the  same  officers  as  heretofore 
and  on  the  same  terms  of  employment."  The 
local  operating  organizations  were  not  changed. 

Under  this  order  the  president  of  a  railroad 
company  acted  as  agent  of  the  Director  General 
and  at  the  same  time  continued  as  the  chief  exec- 
utive of  the  corporation — a  form  of  organization 
which  was  continued  until  after  the  passage  of  the 
Federal  Control  Act,  approved  March  21,  1918. 

*The  Federal  Control  Act  provided  for  the  war-time  suspension 
of  the  anti-trust  and  the  anti-pooling  laws  as  applied  to  railroads. 


38  AMERICAN  RAILROADS 

That  Act  set  forth  the  terms  of  compensation  to 
the  corporations  and  otherwise  established  the 
relations  between  the  Director  General  as  the 
lessee  of  the  railroads  and  the  individual  com- 
panies as  lessors. 

Immediately  after  the  passage  of  the  Control 
Act  an  attempt  was  made  to  draw  a  fairly  sharp 
line  between  railroad  activities  which  were  purely 
corporate  and  those  which  were  federal.  For  ex- 
ample, on  March  30,  1918,  Circular  No.  17  out- 
lined a  policy  under  which  the  salaries  and 
expenses  of  officers  and  employees  engaged  pri- 
marily in  work  for  the  corporation  would  be  paid 
from  corporate  funds,  if  the  corporation  de- 
sired to  continue  their  services,  and  under  which 
the  Government  would  pay  the  salaries  and  ex- 
penses of  such  officers  and  employees  only  as 
were  necessary  for  the  federal  operation  of  rail- 
roads. This  circular  was  aimed  at  such  corporate 
officers  as  chairmen  of  the  board,  general  counsel, 
and  executive  financial  officers  such  as  the  New 
York  corporate  organizations  of  western  and 
southern  railroads. 

This  action  was  followed  on  May  21  by  a  funda- 
mental change  in  organization.  Instead  of  con- 
tinuing the  chief  executive  of  a  railroad  company 
as  the  agent  of  the  Government,  the  Director 
General  ordered  that  there  should  be  a  distinct 
cleavage  between  federal  and  corporate  activities. 
To  that  end  he  required  that  a  federal  manager, 
to  act  for  the  Director  General,  should  be  ap- 
pointed for  each  railroad  or  for  each  group  of 
railroads  in  the  cases  where  some  of  the  small 


AMERICAN  RAILROADS  39 

roads  were  operated  as  parts  of  larger  systems. 
The  federal  manager  of  the  Baltimore  &  Ohio 
Railroad,  for  example,  had  charge  also  of  the 
Western  Maryland  and  the  Cumberland  Valley 
Railroads.  Federal  managers  were  obliged  to 
sever  all  connections  with  the  railroad  compa- 
nies. They  were  to  represent  the  Government  ex- 
clusively. 

In  most  cases  the  president  or  the  operating 
vice-president  was  chosen  as  federal  manager. 
Thereafter  there  were  two  sets  of  officers  and  em- 
ployees. The  first,  the  federal  organization,  in- 
cluded as  its  principal  officers  a  federal  manager 
(on  a  few  of  the  larger  systems  there  was  also  a 
general  manager),  a  federal  auditor,  a  federal 
treasurer,  a  federal  counsel,  and  other  officers  nec- 
essary under  governmental  operation.  The  second 
set  of  officers  looked  out  for  corporate  interests 
and  consisted  of  a  president,  secretary,  corporate 
auditor,  corporate  treasurer,  and  others  necessary 
to  serve  the  interests  of  the  company  while  the 
roads  were  under  federal  control.  This  action, 
designed  to  remove  the  possibility  of  conflict  of 
interest  and  of  loss  to  the  Government  by  the  for- 
mer plan  of  dual  responsibility,  was  precipitated 
by  a  few  cases  in  which  the  Director  General  did 
not  receive  the  measure  of  support  which  he  be- 
lieved was  necessary. 

In  announcing  the  new  policy  Mr.  McAdoo 
said: 

Inasmuch  as  "no  man  can  serve  two  masters,"  and 
the  efficient  operation  of  the  railroads  for  winning  the 
war  and  the  service  to  the  public  is  the  purpose  of 
federal  control,   it  was  manifestly  wise  to  release  the 


1-0  AMERICAN   RAILROADS 

presidents  and  other  officers  of  the  railroad  companies, 
■with  whose  corporate  interest  they  are  properly  con- 
cerned, from  all  responsibility  for  the  operation  of  their 
properties.  .  .  .  All  ambiguity  of  obligation  is  thus 
avoided.  Officers  of  the  corporation  are  left  free  to 
protect  the  interests  of  their  owners,  stockholders,  and 
creditors,  and  the  regional  and  operating  managers 
have  a  direct  and  undivided  responsibility  and  alle- 
giance to  the  United  States  Railroad  Administration. 

Mr.  ]\IeAdoo  asserted  that  the  Government 
saved  large  sums  by  the  change  and  much  pub- 
licity was  given  to  the  ''fancy  salaries"  paid  rail- 
road presidents  and  others  Avho  Avere  by  this 
action  transferred  to  the  corporate  payrolls  and 
paid  from  corporate  funds,  or  who,  as  federal 
managers,  were  paid  lower  salaries.  The  ma- 
jority of  the  officers  who  accepted  the  higher 
positions  in  the  regional  and  central  organiza- 
tions received  smaller  salaries  than  they  had 
received  as  officers  of  railroad  companies,  but  the 
number  whose  compensation  was  reduced  was  not 
large  among  federal  managers.  A  few  were  bene- 
fited financially.* 

With  this  change  in  the  relations  between  the 
Director  General  and  the  companies,  the  organiza- 
tion of  the  United  States  Railroad  Administration 

*"  Under  private  control  of  the  railroads  2,325  officers  drawing 
salaries  of  $5,000  a  year  or  over  were  employed,  with  aggregate 
salaries  of  $21,320,187.  Under  Government  control  1,925  officers 
(a  reduction  of  400)  are  doing  the  same  work,  and  the  aggregate 
of  their  salaries  is  $16,705,298 — a  saving  of  $4,614,889  per  an- 
num. This  total  includes  the  officers  of  the  various  regional  dis- 
tricts as  well  as  those  of  the  central  administration  in  Washing- 
ton." (Report  to  the  President  by  the  Director  General  of  Rail- 
roads, for  seven  months  ending  July  31,  1918.)  This  feature  of 
federal  control  was  emphasized  for  political  effect.  The  salaries 
of  general  officers  take  less  than  1%  of  operating  revenues. 


AMERICAN  RAILROADS  4.1 

assumed  the  form  which  continued  without  sub- 
stantial alteration  during  the  entire  period  of 
federal  control.  The  unit  of  organization  was  the 
federal  manager  of  a  road  or  a  small  group  of 
roads.  The  country  was  divided  into  seven 
regions — Eastern,  Allegheny,  Pocahontas,  South- 
ern, Northwestern,  Central  Western,  and  South- 
western. Each  region  was  in  charge  of  a  regional 
director,  assisted  in  some  cases  by  district  direc- 
tors. The  regional  directors  had  control  over  all 
activities  within  their  respective  regions,  but  in 
functional  matters  their  work  was  coordinated  by 
the  several  directors  of  the  central  administra- 
tion. 

An  organization  chart  would  show  full  lines 
of  responsibility  and  authority  between  the  re- 
gional directors  and  the  Director  General,  with 
broken  lines  indicating  advisory  relations  between 
the  regional  directors  and  the  directors  of  the 
several  divisions.  But  the  procedure  was  never 
definitely  understood,  and  at  times  there  was 
confusion.  In  theory  the  regional  directors,  con- 
trolling the  several  federal  managers,  w^ere  in- 
tended to  be  supreme  in  their  respective  regions, 
and  were  to  be  responsible  directly  to  the  Direc- 
tor General.  It  was  the  intention  that  the  central 
organization  should  work  through  the  regional 
directors.  In  practise,  liowever,  there  was  mucli 
** short-cutting"  between  officers  of  the  central 
administration  and  the  federal  managers,  federal 
auditors,  federal  treasurers,  and  other  officers 
subordinate   to   federal    managers.      There   was 


42  AMERICAN  RAILROADS 

some  feeling  on  the  part  of  the  regional  directors 
that  they  should  not  be  held  responsible  for  ac- 
tions over  which  they  had  no  direct  control.  Yet 
on  the  wliole,  considering  the  size  of  the  organiza- 
tion* and  the  lack  of  time  in  which  to  work  out 
and  publish  a  Manual  of  Organization  with  a  clear 
definition  of  authority  and  responsibility,  the 
confusion  was  relatively  small.  Inasmuch  as  the 
motives  of  practically  every  one  in  the  official 
organization  were  in  harmony  with  the  control- 
ling desire  to  operate  the  railroads  at  the  highest 
pitch  of  efficiency  for  war  purposes,  it  was  just 
as  well  that  the  order  of  procedure  was  not  so 
bound  up  by  rigid  rules  as  to  substitute  army 
''red  tape"  for  a  reasonable  degree  of  personal 
initiative  in  short-cutting  where  the  circum- 
stances justified. 

Mr.  McAdoo  displayed  excellent  judgment  in 
the  selection  of  the  regional  and  divisional  staff 
directors.  In  nearly  every  case  he  was  successful 
in  recruiting  men  of  exceptional  and  well-recog- 
nized ability  as  railroad  executives.  With  the 
exception  of  a  few  members  of  his  personal  staff 
his  selections  were  wholly  from  railroad  ranks 
and  he  aimed  to  secure  the  highest  order  of  talent. 

As  director  of  the  Eastern  region  he  chose  A. 
H.  Smith,  president,  New  York  Central  Lines. 
Mr.  Smith  was  assisted  by  three  district  directors : 
J.  H.  Hustis,  receiver,  Boston  «&  Maine  K.  R.,  for 
New  England ;  A.  T.  Hardin,  vice-president.  New 
York  Central  R.  R.,  for  the  Central  district;  and 

"Railroad  officers  and  employees  in  federal  control  Avith  those 
employed  by  the  Pullman  lines,  express  company,  and  water  lines 
numbered  approximately  2,000,000,  or  half  as  many  men  as  were 
in  the  army  and  navy  at  the  height  of  our  military  activity. 


AMERICAN  RAILROADS  43 

H.  A.  Worcester,  vice-president,  C.  C.  C.  &  St.  L. 
Railway,  for  the  Ohio-Indiana  district.  The  other 
regional  directors  were:  Allegheny  region,  C.  H. 
Markham,  president,  Illinois  Central  R.  R. ;  Poca- 
hontas region,  N.  D.  Maher,  president,  Norfolk  & 
Western  Railway;  Southern  region,  B.  L.  Win- 
chell,  director  of  traffic.  Union  Pacific  R.  R. ; 
Northwestern  region,  R.  H.  Aishton,  president, 
Chicago  &  Northwestern  Railway;  Central  West- 
ern region,  Hale  Holden,  president,  Chicago,  Bur- 
lington &  Quincy  R.  R. ;  and  Southwestern  region, 
B.  F.  Bush,  president,  Missouri  Pacific  R.  R. 
Each  of  the  regional  directors  chose  a  staff  of 
high-grade  men  as  regional  assistants  in  trans- 
portation, traffic,  engineering,  mechanical,  ac- 
counting, and  purchasing. 

Mr.  McAdoo's  selection  as  his  principal  as- 
sistant was  Walker  D.  Hines,  chairman  of  the 
board,  Atchison,  Topeka  &  Santa  Fe  Railway,  a 
railroad  lawyer  of  conspicuous  ability.  Mr.  Hines 
subsequently  succeeded  Mr.  McAdoo  as  Director 
General.  The  personnel  of  the  directors  of  the 
several  divisions  was  as  follows: 

Division  of  Operation:  Carl  R.  Gray,  president. 
Western  Maryland  Railway.  His  principal  as- 
sistant was  W.  T.  Tyler,  assistant  to  vice-presi- 
dent, Northern  Pacific  Railway.  Mr.  Tyler 
succeeded  Mr.  Gray  as  director  of  the  division  in 
January,  1919.  The  division  was  subdivided  into 
several  sections  (such  as  car  service,  troop  move- 
ment, mechanical,  engineering,  fuel  conservation, 
telegraph,    operating    statistics,    inspection    and 


44  AMERICAN  RAILROADS 

test,  safety,  secret  service,  and  health)  with  a 
manager  in  charge  of  each  section. 

Division  of  Traffic:  Edward  Chambers,  vice- 
president,  Atchison,  Topeka  &  Santa  Fe  Railway. 
?Iis  principal  assistants  were  Robert  C.  Wright, 
freight  traffic  manager  Pennsylvania  R.  R.,  and 
(ierrit  Fort,  passenger  traffic  manager,  Union 
Pacitic  R.  R.  The  division  included  the  following 
sections  or  committees:  express  and  mail,  agri- 
cultural, inland  traffic,  and  consolidated  classifi- 
cation, with  passenger  traffic  committees  and 
freight  traffic  committees  for  the  East,  South  and 
West. 

Division  of  Finance  and  Purchases:  John 
Skelton  Williams,  controller  of  the  currency. 
This  division  was  subsequently  split  into  two 
parts — Finance,  in  charge  of  former  Congress- 
man Swager  Shirley,  and  Purchases,  directed  by 
H.  B.  Spencer,  vice-president.  Southern  Railway. 

Division  of  Law:  John  Barton  Payne,  counsel 
for  the  Emergency  Fleet  Corporation. 

Division  of  Accounting  and  Public  Service: 
Charles  A.  Prouty,  director  of  valuation.  Inter- 
state Commerce  Commission.  Judge  Prouty  dur- 
ing a  long  term  of  years  was  a  member  of  the 
Commission.  In  1919  this  division  was  separated 
into  two  parts.  Judge  Prouty  continued  in  charge 
of  accounting  and  Max  Thelen,  former  chairman 
of  the  California  Railroad  Commission,  was  ap- 
pointed director  of  public  service. 

Division  of  Capital  Expenditures :  R.  S.  Lovett, 
chairman,  Union  Pacific   System.     When  Judge 


AMERICAN   RAILROADS  45 

Lovett  resigned  in  1919  lie  was  succeeded  by  T.  C. 
Powell,  vice-president,  Southern  Railway. 

Division  of  Labor:  W.  S.  Carter,  president, 
Brotherhood  of  Locomotive  Firemen  and  Engine- 
men.  The  three  boards  of  adjustment  were  a 
part  of  this  division.  The  Board  of  Railroad 
Wages  and  Working  Conditions  reported  direct 
to  the  Director  General. 

These  details  are  given  to  indicate  the  high 
caliber  of  men  selected  to  carry  on  the  work  of  the 
Railroad  Administration.  It  is  proper  to  state 
that  Mr.  McAdoo  personally  did  little  more  than 
direct  the  general  policy,  particularly  as  to  public 
relations  and  labor.  His  duties  as  Secretary  of 
the  Treasury  left  him  little  time  to  devote  to  the 
railroads,  especially  while  the  several  Liberty 
Loan  campaigns  were  under  w^ay.  The  organiza- 
tion at  headquarters  and  in  the  field,  therefore, 
was  essentially  railroad-trained,  and  outside  of 
relations  with  labor  and  large  matters  of  public 
policy,  Mr.  McAdoo  left  nearly  everything  to  his 
railroad-trained  assistants  and  the  regional  di- 
rectors. 

One  of  the  Director  General's  first  general  let- 
ters of  instruction  to  the  regional  directors,  that 
of  February  4,  1918,  defining  the  duties  of  the 
regional  directors,  is  quoted  in  full,  as  it  gives 
a  fairly  clear  picture  of  what  was  in  his  mind  in 
the  first  days  of  the  Administration  when  the 
organization  was  beginning  to  function  effec- 
tively : 


46  AMERICAN  RAILROADS 

"Dear  Sirs:  The  following  is  an  outlLne  of  the  func- 
tions of  the  Regional  Directors.  I  shall  be  glad  if  you 
will  bring  to  my  attention  from  time  to  time  any  points 
which  are  not  clear  to  you  or  which  you  think  call  for 
modification  or  extension. 

' '  Broadly  speaking,  I  wish  to  give  you  power  to  direct 
railroad  operations  in  your  territory  so  as  to  handle 
traiBc  with  the  least  congestion,  the  highest  efficiency, 
and  the  greatest  expedition.  As  far  as  is  consistent 
with  these  objects  you  will,  of  course,  keep  down  oper- 
ating expenses. 

"I  have  put  responsibility  upon  you  for  the  entire 
operating  situation.  I  mention  the  following  simply  as 
few  illustrations  of  the  matters  which  are  thus  intrusted 
to  you  : 

"You  should  see  that  terminals  are  used  to  the  best 
advantage  and  that  such  changes  in  established  prac- 
tises are  made  as  will  bring  this  about. 

"Where  minor  capital  expenditures  are  needed  to 
establish  new  connections  for  the  better  use  of  ter- 
minals, you  will  endeavor  to  get  some  or  all  of  the 
interested  companies,  by  their  voluntary  action,  to 
arrange  therefor,  and  wiJl  refer  to  me  cases  of  expendi- 
tures which  cannot  be  so  arranged. 

"You  will  order  such  changes  in  routing  of  traffic, 
using  any  lines  or  parts  of  lines  in  combination  as  will 
avoid  uneconomical  routes  and  congestion  of  particular 
terminals  or  railroads,  giving  due  consideration  to 
shippers'  interests. 

"The  Commission  on  Car  Service  has  been  replaced 
by  the  Car  Service  Section  of  the  Division  of  Trans- 
portation (the  personnel  remaining  largely  the  same). 
The  Car  Service  Section — 

"(a)  Will  have  charge  of  all  matters  pertaining  to 
car  service,  including  the  relocation  of  freight  cars  as 
between  individual  railroads  and  regions. 


AMERICAN  RAILROADS  47 

"(b)  Will  issue  instructions  through  the  Eegional 
Director  providing,  on  application  of  proper  govern- 
mental authorities,  for  preference  in  car  supply  and 
movement. 

"  (c)  Will  receive  from  railroads  such  reports,  periodi- 
cal or  special,  as  it  may  require  in  order  to  keep  fully 
informed  with  respect  to  car  service,  embargo  or  trans- 
portation conditions. 

"  (d)  Must  be  promptly  informed  of  all  embargoes 
placed,  modified  or  removed,  and  will,  from  time  to  time, 
recommend  such  embargo  policies  and  exemptions  as 
the  needs  of  the  Government,  seasonal  requirements,  or 
other  circumstances  may  demand. 

"(e)  Will  deal  directly  with  railroads  with  respect 
to  matters  within  its  jurisdiction,  and  will  keep  the 
Regional  Directors  advised  of  all  instructions  or  orders 
in  which  they  are  concerned. 

"You  will  keep  fully  advised  as  to  the  situation  con- 
cerning the  use  of  locomotives,  repairs  to  locomotives, 
amount  of  shop  capacity,  and  amount  of  shop  labor 
available  for  locomotive  repairs.  You  will  have  power 
to  promote  the  general  good  of  the  transportation  sit- 
uation in  your  region  by  making  transfers  of  locomo- 
tives from  one  railroad  to  another  or  of  locomotives 
needing  repairs  from  one  shop  to  another  and  transfer 
of  shop  labor  from  one  shop  to  another.  Such  trans- 
fers, should,  of  course,  have  reference  to  any  agree- 
ments between  labor  and  the  company  affected  and  be 
made  with  just  regard  to  the  welfare  and  rights  of 
employees.  You  will,  of  course,  have  like  duty  and 
power  respecting  car  repairs. 

"As  to  labor,  you  have  been  advised  of  the  appoint- 
ment of  the  Railroad  Wage  Commission.  The  general 
policy  as  to  all  labor  is  that  there  shall  be  no  interrup- 
tion of  work  because  of  any  controversies  between  em- 
ployers and  employees.  All  matters  relating  to  wages 
and  living  conditions  will  have  the  consideration  of  the 
Railroad  Wage  Commission. 


48  AMERICAN  RAILROADS 

"Pending  action  by  me  upon  the  report  of  that  com- 
mission there  ouj^ht  not  to  be  any  radical  change  in 
existing  practises  without  submitting  the  matter  to  me 
for  approval.  But  it  should  be  understood  that  the 
usual  methods  of  settling  by  agreement  ordinary  griev- 
ances and  complaints  shall  continue  as  heretofore  and 
that  the  companies  are  free  to  negotiate  as  heretofore 
with  their  employees  and  are  expected  to  observe  faith- 
fully existing  agreements  with  their  employees.  In 
cases  of  doubt  about  new  negotiations  with  employees, 
the  advice  of  the  Director  General  should  be  sought. 

"You  should  bear  in  mind  that  labor  has  the  very 
natural  feeling  that  railroad  managers,  although  now 
w^orking  for  the  Government  and  on  Government  ac- 
count, necessarily  continue  the  same  conception  of  and 
attitude  toward  labor  problems  that  they  had  when 
acting  under  private  management.  I  am  told  that  labor 
will  have  a  natural  suspicion  that  any  unfavorable 
action  taken  by  railroad  managers  indicates  a  purpose 
on  their  part  to  make  governmental  control  a  failure 
and  to  use  it  for  promotion  or  vindication  of  their  own 
theories. 

"For  these  reasons,  great  care  should  be  taken  to 
avoid  anything  having  even  the  appearance  of  arbi- 
trar}-^  action,  and  it  will  be  expedient,  at  least  at  the 
outset  and  until  the  matter  shall  take  more  definite 
shape,  not  to  dispose,  unless  by  mutual  agreement,  of 
any  labor  claims  involving  large  questions  of  policy 
without  first  submitting  the  matter  to  me. 

"In  the  central  organization  in  Washington  T  pro- 
pose to  have  a  labor  man  as  a  member  of  my  staff  who 
will  give  his  special  attention  to  labor  problems,  not 
only  to  the  problems  of  wages  and  conditions  but  also 
to  the  problem  of  aiding  the  railroads  in  obtaining 
sufficient  labor  and  of  bringing  about  a  better  under- 
standing between  officers  and  employees.  The  morale 
and  esprit  de  corps  of  officers  and  men  should  be 
brought  to  the  highest  standards. 


AMERICAN  RAILROADS  49 

"There  are  several  matters  involving  broad  questions 
of  public  policy  concerning  which  I  wish  you  to  make 
careful  studies  and  report  to  me  with  your  recommen- 
dations. 

"1.  To  what  extent  if  at  all  should  additional  pas- 
senger service  be  discontinued  in  order  to  save  coal, 
labor,  locomotives,  and  shop  capacity  for  freight  ser- 
vice. In  arriving  at  any  recommendations  on  this  mat- 
ter it  is  \'ery  importaiit  to  give  due  consideration  to 
public  convenience.  It  is  quite  probable  that  I  shall 
wish  to  take  the  matter  up  informally  with  State  rail- 
road commissions  as  to  any  reductions  in  service  which 
you  think  should  be  made.  In  dealing  with  such  mat- 
ters the  local  point  of  view  must  be  considered  and  the 
State  commissions  afford  a  useful  instrumentality  for 
obtaining  this  point  of  view,  and  also,  to  the  extent  that 
we  can  act  in  harmony  with  the  commission's  views,  for 
satisfying  local  public  sentiment  as  to  what  is  done. 
So  far  the  State  commissions  have  evinced  a  commend- 
able spirit  of  cooperation. 

"2.  I  wish  you  also  to  make  careful  study  of  the 
extent  to  which  (a)  freight  solicitation  should  be  dis- 
continued or  diminished  and  freight  and  passenger 
agencies,  freight  offices,  ticket  offices,  and  so  forth,  dis- 
continued or  consolidated;  (h)  the  extent  to  which 
traffic  officials,  soliciting  or  otherwise,  should  be  trans- 
ferred to  other  service  and  to  what  other  service  they 
should  be  assigned;  and  (c)  extent  to  which,  if  at  all, 
any  portion  of  these  forces  should  be  released  from 
service. 


(<0 


'3.  I  wish  you  also  to  make  a  study  of  (a)  the  extent 
to  which  duplications  of  service  can  be  avoided,  both 
passenger  and  freight;  (h)  extent  to  which  fast  freight 
service  can  be  discontinued  or  slowed  down;  (c)  extent 
to  which  less-than-carload  service  can  be  consolidated 
or  diminished ;  at  all  times  having  reasonable  consider- 
ation for  the  public  convenience. 

"4.  I  would  like  to  have  your  views  as  to  the  extent 
to  which  the  making  of  purchases  can  be  unified  either 


60  AMERICAN  RAILROADS 

for  the  entire  country,  or  for  the  separate  regions,  or 
for  parts  thereof,  accompanying  it  with  a  statement  of 
the  advantages  which  you  think  would  result  from  such 
unification. 

"5.  The  extent  to  which  standardization  may  be 
effected  in  your  region  on  the  railroads  in  your  terri- 
tory (a)  with  respect  to  locomotives — the  various  types 
which  will  be  required  to  effect  the  best  standardization ; 
(b)  freight  cars,  open  and  box  cars,  and  the  various 
types  which  will  be  best  adapted  for  use  in  your  terri- 
tory. 

"Your  recommendations  should  be  made  in  reference 
to  the  adoption  to  the  same  standards  throughout  the 
United  States  except  in  so  far  as  local  conditions  can 
make  specific  types  or  designs  desirable  to  meet  the 
peculiarities  of  such  local  conditions. 

"6.  In  general,  I  shall  be  glad  to  have  you  make  a 
study  of  the  extent  to  which  various  classes  of  operating 
expenses  can  be  curtailed  or  eliminated  on  account  of 
present  conditions  of  Government  possession  and  con- 
trol. Of  course,  you  understand  that  by  virtue  of  Gen- 
eral Order  No.  6  it  will  be  necessarj'-  for  local  associa- 
tions *  to  make  applications  for  the  Director  General's 
approval  if  it  is  desired  that  they  continue  to  be  sup- 
ported out  of  operating  revenues.  If  any  such  applica- 
tions are  made  to  you,  I  shall  be  glad  to  have  your  rec- 
ommendations in  regard  thereto,  being  guided  by  the 
principle  that  no  functions  should  be  carried  on  by  asso- 
ciations whose  expenses  are  chargeable  against  oper- 
ating revenues  except  such  functions  as  are  reasonably 
necessary  under  the  existing  condition  of  Government 
possession  and  control,  and  that  only  the  expense  ap- 
propriate to  such  functions  should  be  paid  out  of  oper- 
ating revenues. 

"On  all  these  matters  I  shall  appreciate  your  specific 
recommendations  at  the  earliest  practicable  date. 

*Thi8  refers  to  associations  of  railroad  officers,  such  aa  the 
American  Railway  Association. 


AMERICAN  RAILROADS  51 

"In  dealing  with  this  whole  subject  it  is,  of  course, 
important  for  you  to  view  the  matter,  and  to  get  the 
various  railroad  executives  of  railroads  in  your  juris- 
diction to  view  the  matter,  from  the  entirely  new  stand- 
point that  all  the  railroads  now  constitute  a  single  sys- 
tem to  be  operated  so  as  to  secure  the  maximum  of 
transportation  with  the  minimum  of  waste,  and  that  the 
fact  that  a  readjustment  will  mean  that  a  particular 
railroad  will  lose  certain  sorts  of  traffic  must  be  disre- 
garded as  it  is  not  sufficient  reason  why  the  readjust- 
ment should  not  be  made,  if  in  other  respects  it  is  in 
the  public  interest. 

"Certain  general  matters  are  having  consideration 
here  and  somewhat  later  will  probably  be  taken  up  with 
you.  Examples  of  these  matters  are  additions  and  bet- 
terments, what  equipment  not  already  ordered  needs 
to  be  provided.  I  shall  be  greatly  interested  in  any  sug- 
gestions which  you  can  make  to  me  on  these  matters  at 
the  present  time  and  from  time  to  time. 

' '  You  will  of  course  have  the  right  to  continue  or  dis- 
continue or  create  such  local  committees  or  representa- 
tives as  you  think  proper  to  insure  the  best  results  at 
particular  terminals  or  in  particular  subdivisions  of 
your  territory.  Doubtless  at  many  important  terminals 
you  will  find  it  advantageous  to  select  some  exception- 
ally able,  aggressive,  and  tactful  railroad  representative 
to  take  charge  of  the  terminal  and  to  coordinate  with 
the  railroad  activities,  the  activities  of  merchants,  coal 
dealers,  truckmen,  and  so  forth,  so  as  to  secure  the  best 
possible  results  in  the  loading  and  unloading  of  cars. 

"I  take  it  that  your  communications  to  the  railroads 
in  your  region  should  be  to  the  respective  presidents, 
receivers,  or  other  chief  operating  officers  with  such 
modifications  of  that  practise  as  you  may  think  advis- 
able, arranging,  however,  in  case  of  such  modifications, 
that  the  president,  receiver,  or  other  chief  operating 
officer  fully  understands  the  practise  which  you  pursue. 

"Pending  the  further  shaping  of  the  work,  there  are 
various  general  subjects  which  you  should  refer  to  this 


52  AMERICAN  RAILROADS 

ofticc  ajul  in  all  such  cases  I  shall  appreciate  your  sug- 
Pfostions  or  recoramendations.  Among  such  subjects  are 
finaucial  problems  and  legal  problems. 

"I  wish  to  emphasize  that  I  do  not  consider  it  expe- 
dient for  the  Regional  Directors  to  undertake  to  es- 
tablish without  my  approval,  policies  of  a  public  char- 
acter, i.  e.,  policies  which  substantially  affect  the  char- 
acter of  service  rendered  the  public  or  the  rights  of  the 
public. 

"Substantial  reduction  of  passenger  service  is  an 
example  of  this  character.  It  is  impracticable  to  define 
the.se  matters  clearly,  but  practical  definition  will 
evolve  gradually  as  cases  arise.  Meanwhile  doubtful 
questions  should  be  submitted  to  me. 

"The  controlling  princii)les  is  that  the  Government 
being  now  in  possession  and  control,  it  is  important  for 
the  Director  General,  as  the  direct  representative  of 
the  Government,  to  have  a  voice  in  deciding  matters 
which  primarily  affect  the  public,  because  we  cannot 
expect  that  the  public  will  be  entirely  satisfied  to  have 
these  matters  settled  by  the  railroad  managers,  which 
in  the  public  estimation  will  still  be  regarded  as  imbued 
with  the  attitude  of  private  management,  no  matter 
how  disinterestedly  those  managers  may  be  endeavoring 
to  represent  the  public  interest  and  nothing  else. 

"Generally  speaking,  you  will  develop  your  organ- 
ization as  3'ou  think  necessary,  but  it  seems  to  me  that 
in  any  event  you  will  need  a  competent  traffic  repre- 
sentative who  should  be  selected  with  the  concurrence 
of  Mr.  Edward  Chambers,  who  will  be  in  charge  of  the 
Division  of  Traffic  with  headquarters  at  Washington. 
I  think  you  had  better  treat  your  organization  as  ten- 
tative until  you  have  submitted  the  organization  plan 
to  me,  as  I  may,  upon  consideration  of  tentative  plan, 
wish  to  make  some  suggestion  upon  the  subject." 


CHAPTER  V 

THE  CONTRACT  BETWEEN  THE  GOVERNMENT 
AND  THE  RAILROAD  COMPANIES 

FROM  the  date  of  the  passage  of  the  Federal 
Control  Act,*  March  21,  1918,  until  the 
latter  part  of  the  following  October,  a  large 
part  of  the  time  of  the  Director  General  and  his 
legal  and  other  advisors  was  taken  in  framing 
a  standard  contract*  between  the  Government 
and  the  railroad  companies.  While  the  contract 
was  to  be  based  npon  the  provisions  of  the 
Federal  Control  Act,  the  terms  of  the  Act 
were  so  hurriedly  drawn  that  many  complications 
and  opportunities  for  dispute  in  interpretation 
were  apparent  when  the  attempt  was  made  to 
draft  a  formal  contract.  The  negotiations  be- 
tween Mr.  McAdoo  and  his  legal  staff,  represent- 
ing the  Government,  and  T.  DoAVitt  Cuyler,  Al- 
fred P.  Thom,  and  others,  representing  the  As- 
sociation of  Railway  Executives,  were  long  drawn 
out,  and  the  contract  finally  agreed  upon  con- 
tains many  compromises,  nearly  all  of  them  in 
favor  of  the  Government.  On  the  part  of  the 
Director  General  there  was  a  disposition  to  be  un- 
yielding and  on  the  part  of  the  railway  execu- 
tives there  was  an  appreciation  of  the  fact  that 

*  The  Federal  Control  Act   ;tnd  the  standard  contract  are  in- 
cluded in  the  Appendix. 

53 


54  AMERICAN  RAILROADS 

the  stress  of  the  emergency  was  such  that  they 
could  not  afford  to  make  an  issue  on  controversial 
features  which  in  calmer  times  would  have  been 
decided  in  their  favor. 

The  principal  points  of  difference  were  in  con- 
nection with  the  method  of  measuring  the  ade- 
quacy of  maintenance  and  as  to  the  payments  for 
additions  and  betterments.  The  Director  General 
insisted  that  the  Government  should  have  the  right 
to  deduct  the  cost  of  such  work  from  the  pay- 
ments to  be  made  as  rentals.  The  contract  as 
finally  approved  provided  (section  7)  that  the 
power  to  make  such  deductions  should  not  be  ex- 
ercised so  as  to  prevent  the  companies  from  sup- 
porting their  organizations,  keeping  up  sinking 
funds,  and  meeting  other  obligations  such  as  cor- 
porate taxes,  rents,  and  interest.  It  provided 
further  in  the  same  section : 

"The  power  provided  in  this  paragraph  to  deduct 
the  amount  due  from  the  companies  for  the  cost  of  addi- 
tions and  betterments  not  justly  chargeable  to  the 
United  States  is  further  declared  to  be  an  emergency 
power,  to  be  used  by  the  Director  General  only  when 
he  finds  that  no  other  reasonable  means  is  provided  by 
the  companies  to  reimburse  the  United  States,  and,  as 
contemplated  by  the  President's  proclamation  and  by 
the  Federal  Control  Act,  it  will  be  the  policy  of  the 
Director  General  to  so  use  such  power  of  deduction  as 
not  to  interrupt  unnecessarily  the  regular  payment  of 
dividends  as  made  by  the  companies  during  the  test 
period. ' ' 

The  committee  of  railway  executives  sought 
earnestly  to  prevail  upon  the  Director  General 
to  change  his  attitude  in  denying  the  right  of 


AMERICAN  RAILROADS  66 

the  companies  to  institute  litigation  at  the  end 
of  federal  control  to  recover  for  damages  by  rea- 
son of  diversion  of  traffic  during  federal  control, 
but  Mr.  McAdoo,  supported  by  a  ruling  of  the 
Solicitor  General,  insisted  that  the  railroads  hav- 
ing been  taken  over  for  war  purposes,  Congress 
intended  that  the  authorized  rentals  should  cover 
the  possibility  of  future  losses  of  the  kind.  Sec- 
tion 3  of  the  contract  specifically  provided  that 
the  companies  may  make  no  claim  for  loss  or 
damage  ''to  their  business  or  traffic  by  reason 
of  the  diversion  thereof  or  otherwise  which  has 
been  or  may  be  caused  by  said  taking  or  by  said 
possession,  use,  control,  and  operation." 

The  committee  of  the  Association  of  Railway 
Executives  acted  only  in  an  advisory  capacity. 
Its  acceptance  of  the  contract  did  not  bind  any  in- 
dividual company. 

The  Federal  Control  Act  gave  legislative  effect 
to  the  program  outlined  by  the  President  in  his 
proclamation  of  December  26,  1917,  in  which  the 
Director  General  was  directed  to  ''enter  into 
negotiations  with  the  several  companies  looking 
to  agreements  for  just  and  reasonable  compensa- 
tion for  the  possession,  use  and  control  of  their 
respective  properties  on  the  basis  of  an  annual 
guaranteed  compensation  above  accruing  de- 
preciation and  the  maintenance  of  their  prop- 
erties equivalent,  as  nearly  as  may  be,  to  the 
average  of  the  net  operating  income  thereof  for 
the  three-year  period  ending  June  30,  1917." 

In  his  proclamation  the  President  stipulated 
also  that  the  taking  of  the  roads  should  not  be 


56  AMKillCAN   RAILROADS 

allowed  lo  impair  the  rights  of  stockholders,  bond- 
holders, creditors,  and  other  persons  having  in- 
terests. Regular  dividends  hitherto  declared  and 
maturing  interest  upon  funded  debt  and  other 
obligations  were  to  be  paid  in  due  course,  and 
the  companies  were  to  be  permitted,  unless  other- 
wise directed  by  the  Director  General,  to  con- 
tinue to  pa}'  such  dividends  and  interest. 

These  assurances  in  the  President's  proclama- 
tion, duly  enacted  in  the  Federal  Control  Act  two 
months  later,  Avere  made  a  part  of  the  standard 
contract.  As  has  already  been  stated  the  com- 
panies wore  to  be  paid  as  annual  compensation 
(called  the  standard  return)  a  sum  equal  to  the 
average  yearly  net  railway  operating  income 
earned  by  each  company  during  the  three  years 
ending  June  30,  1917.  By  net  railway  operating 
income  was  meant  the  amount  remaining  after 
operating  expenses,  taxes,  uncollectible  railway 
operating  revenue,  and  the  net  balances  for  use  of 
.ioint  equipment  and  joint  facilities,  had  been  de- 
ducted from  operating  revenues.  The  amount  of 
the  standard  return  for  each  road  was  to  be  de- 
termined by  the  Interstate  Commerce  Commission 
from  its  records,  but  provision  was  made  for  ad- 
justments in  the  standard  return  to  take  account 
of  unusual  conditions  which  affected  the  test 
period  as  an  equitable  basis  for  compensation. 
For  example,  a  road  may  have  been  subjected  to 
abnormal  expenses  because  of  floods  or  other  ex- 
traordinary circumstances;  or  it  may  have  gone 
through  a  physical  rehabilitation  following  a  re- 
ceivershii);  or  it  may  have  had  its  expenses  bur- 


AMERICAN  RAILROADS  57 

deiied  during  the  first  two  years  of  the  test  period 
by  extensions,  enlargements  or  other  improve- 
ments which  were  not  completed  mitil  late  in  the 
test  period  and  consequently  affected  the  net  earn- 
ing power  of  the  property  during  but  a  part  of  the 
test  period  although  they  added  to  net  revenues 
during  the  entire  period  of  federal  control.*  In 
such  cases  it  is  obvious  that  something  should  hv, 
added  to  the  net  railway  operating  income  of  the 
test  period  if  the  standard  return  were  to  repre- 
sent the  true  earning  power  of  the  railroad  dur- 
ing federal  control. 

There  is  little  ground  for  the  criticism  often 
made  that  the  rental  was  based  upon  the  three 
most  prosperous  years  of  railroad  history.  It  is 
true  that  the  net  income  in  1916  was  unusually 
large.  On  the  other  hand,  however,  the  net  in- 
come of  1915  was  sub-normal.  In  1917,  it  was 
about  normal.  The  test  period,  therefore,  in- 
cluded one  poor  year,  one  normal  year,  and  one 
good  year.  The  average  of  the  three  furnished 
a  fair  basis  for  compensation. 

Out  of  this  compensation,  plus  other  corporate 
income  such  as  that  from  investments  or  non- 
transportation  activities,  the  companies  were  to 
pay  their  corporate  expenses,  interest  charges, 
and  other  corporate  deductions  from  income.  The 
remainder  w^as  to  be  available  for  dividends  (at 
regular  rates),  other  appropriations,  or  surplus. 

The  cost  of  additions  and  betterments  to  the 
properties  during  federal  control  was  to  be  paid 

*Sucli  was  the  case  Nvith  the  Southern  Railway.  It  refused  to 
sign  the  contract. 


58  AMERICAN  RAILROADS 

by  the  companies,  but  if  work  under  way  was 
continued  with  the  approval  of  the  Director  Gen- 
eral, or  if  new  work  was  ordered  by  him,  the 
companies  were  to  be  paid  interest  on  the  cost 
from  the  completion  of  the  work.  Additions  and 
betterments  ordered  by  the  Director  General  for 
war  purposes,  if  of  no  permanent  value  to  the 
companies,  were  to  be  made  the  basis  of  claims 
against  the  Government. 

All  expenses  relating  to  the  existence  and  main- 
tenance of  the  corporate  organization  were  to  be 
paid  by  the  corporation  from  its  standard  re- 
turn. 

The  section  of  the  contract  which  deals  with 
upkeep  is  discussed  at  length  in  Chapter  XV. 
In  brief,  the  contract  required  the  Director  Gen- 
eral to  expend  and  charge  to  operating  expenses, 
or  by  payments  into  funds,  such  sums  for  main- 
tenance, repair,  renewal,  retirement  and  deprecia- 
tion, as  might  be  requisite  in  order  to  return  the 
properties  to  the  company  at  the  end  of  federal 
control  in  substantially  as  good  repair  and  in 
substantially  as  complete  equipment  as  it  was 
when  the  road  was  taken  by  the  Government. 

The  foregoing  discussion  mentions  only  a  few 
of  the  important  features  on  the  contract.  The 
complete  text  of  the  standard  contract  will  be 
found  in  the  Appendix  to  this  volume. 

Even  after  the  form  of  the  contract  had  been 
accepted  by  the  committee  of  the  Association  of 
Railway  Executives,  and  recommended  to  the  in- 
dividual companies  for  acceptance,  there  was 
much  delay   and  controversy   before   agreement 


AMERICAN  RAILROADS  69 

was  reached  between  the  Director  General  and  the 
individual  companies.  Up  to  January  1,  1919, 
contracts  had  been  executed  by  but  23  of  the  160 
or  more  Class  1  companies.  At  the  end  of  fed- 
eral control  147  contracts  had  been  executed  and 
83  were  still  under  consideration.  Of  these,  49 
had  agreed  with  the  Director  General  as  to  com- 
pensation, while  15  had  declined  to  accept  the  com- 
pensation offered  and  had  filed  applications  with 
referee  boards  to  fix  compensation.  Six  roads 
had  declined  to  make  contracts  and  seven  had 
never  made  application  therefor. 

The  foregoing  discussion  applies  entirely  to 
the  contract  with  Class  1  railroads.  A  separate 
form  of  contract  was  drawn  for  the  so-called 
''short  lines."  In  most  cases  these  roads  were 
entirely  local  in  their  character,  were  independ- 
ently owned  and  operated,  and  for  the  small 
amount  of  interline  traffic  which  they  handled,  as 
well  as  the  cars  in  which  it  moved,  they  de- 
pended almost  entirely  upon  their  Class  1  railroad 
connections.  A  large  proportion  of  the  short 
lines  were  unable  to  earn  more  than  their  charges 
and  many  were  in  even  greater  financial  straits. 

The  statute  under  which  the  President  took  over 
the  railroads  authorized  him  to  take  all  or  any 
of  the  properties.  In  his  proclamation  of  Decem- 
ber 26,  1917,  the  President  announced  that  he  had 
taken  possession  of  "each  and  every  system  of 
transportation  and  appurtenances  thereof  located 
wholly  or  in  part  within  the  boundaries  of  the 
continental  United  States,"  with  the  proviso  that 


60  AMERICAN   K All, ROADS 

*'by  subsequent  order  and  proclamation,  posses- 
sion, control,  and  operation  in  whole  or  in  part 
may  also  be  relinquished  to  the  owners  thereof 
of  any  part  of  the  railroad  systems.  .  .  .  posses- 
sion and  control  of  which  are  now  assumed." 

Very  few  of  the  short  lines,  which  in  the  aggre- 
gate numbered  about  2,500  separate  properties, 
were  necessary  for  war  transportation  purposes. 
The  Federal  Control  Act,  in  giving  legislative 
effect  to  the  President's  proclamation,  placed  in- 
dependently owned  and  operated  railroads  com- 
peting or  connecting  with  the  railroads  taken  over 
within  the  class  of  federally  controlled  roads,  but 
it  provided  that  roads  which  proved  to  be  un- 
necessarv  or  undesira])le  might  be  relinquished 
prior  to  July  1, 1918. 

Investigation  showed  that  very  few  of  the  large 
number  of  short  lines  were  necessary  for  the  pur- 
poses of  federal  control  and,  on  June  29,  1918, 
2,161  out  of  the  2,500  short  lines  were  relinquished 
from  federal  control.  A  few  of  the  relinquished 
roads  w^ere  subsequently  retaken. 

At  the  time  of  the  relinquishment  it  was  an- 
nounced by  the  Director  General  that  on  the  part 
of  the  Railroad  Administration  a  policy  of  co- 
operation with  the  relinquished  roads  w^ould  be 
maintained,  that  they  would  be  accorded  fair  divi- 
sions of  joint  rates,  an  adequate  car  supply,  and 
assured  of  the  preservation  of  routings  so  far 
as  consistent  with  national  needs. 

Following  a  series  of  negotiations  w^th  rep- 
resentatives of  short  lines,  who  feared  that  the 
change  in  the  relationship  between  the  short  lines 


VMERICAN  RAILROADS  61 

and  the  individual  connecting  lines  now  unified  on 
a  non-competitive  basis  as  between  themselves 
under  federal  control,  particularly  in  the  matters 
of  car  supply  and  routing  of  competitive  traffic, 
threatened  the  existence  of  a  large  number  of  the 
short  lines,  the  Director  General  offered  what  was 
called  a  cooperative  contract.  By  its  terms  the 
order  of  relinquishment  was  recalled,  the  road 
would  be  operated  by  its  own  officers,  it  would  re- 
tain its  own  receipts  and  pay  its  ow^n  expenses, 
would  be  assured  an  equitable  car  allotment  on  a 
liberal  per  diem  basis  (two  days  free  time  per 
freight  car),  and  would  be  guaranteed  the  pres- 
ervation of  the  routing  of  competitive  traffic 
in  the  same  ratio  that  such  traffic  bore  to  the 
total  traffic  in  the  three  years  ended  December 
31,  1917.  Provision  was  made  for  reimbursement 
for  diverted  traffic,  for  fair  tariff  publicity,  and 
the  short  lines  were  to  be  free  to  avail  themselves 
of  the  advantages  of  unified  purchasing  under 
federal  control. 

Up  to  the  end  of  1919,  but  133  short  lines 
elected  to  execute  the  cooperative  contract,  which 
was  open  to  voluntary  signature.  In  a  letter 
from  the  Director  General  to  the  President  of  the 
American  Short  Line  Railroad  Association, 
dated  PVbruary  19,  1919,  the  Director  General  de- 
fined the  relative  positions  of  the  signatory  and 
the  nonsignatory  short  lines: 

"I  am  advised  by  our  general  counsel  that  the  short 
line  railroads  which  si^n  the  contract  secure  all  the 
advantages  of  railroads  which  are  under  'federal  con- 
trol' as  specified  in  the  Federal  Control  Act,  including 
increases  in  rates  and  freedom  from  levy  of  attach- 
ment on  their  property.     In  addition  thereto  they  will 


62  AMERICAN  RAILROADS 

secure  the  specific  advantages  as  to  reimbursement  for 
diverted  traffic,  two  days'  free  time,  and  otherwise, 
specified  in  the  contract.  Short  line  railroads  which 
do  not  sign  the  contract  of  course  do  not  receive  the 
advantages  of  'federal  control'*  specified  in  the  Federal 
Control  Act.  While  it  will  be  the  policy  of  the  Rail- 
road Administration  to  deal  justly  and  fairly  with  non- 
signatory  as  well  as  signatory  railroads  those  who  do  not 
sign  the  contract  but  who  accept  the  special  advantages 
of  two  days'  free  time  and  reimbursement  for  traffic 
diversions  in  accordance  with  the  terms  of  the  contract 
will  do  so  with  the  understanding  that  they  waive  all 
claims  against  the  Government  and  will  execute  appro- 
priate papers. 

''For  the  purpose  of  finally  removing  the  impression, 
which  you  state  exists  widely  over  the  country  that  the 
Railroad  Administration  is  unfriendly  to  short  line  rail- 
roads, I  shall  issue  appropriate  instructions  to  all  offi- 
cers and  emploj^ees  of  the  federally  controlled  lines 
directing  them  to  give  fair,  just  and  friendly  considera- 
tion to  short  line  railroads. ' ' 

In  addition  to  the  133  short  lines  which,  up  to 
the  end  of  1919,  had  signed  the  cooperative  con- 
tract, 49  had  applied  for  and  were  granted  leave 
to  file  waiver  of  claims  in  return  for  the  ad- 
vantages of  an  allowance  of  free  time  on  freight 
cars  and  the  promise  of  reimbursement  for  traffic 
diversions.!  ''The  large  majority  declined  to  do 
so  (to  sign  the  contract)  because  they  felt  that 
it  had  serious  legal  defects  and  could  not  be  en- 
forced against  the  Government."** 

*Tliis  has  particular  reference  to  the  guaranteed  rental  or 
' '  standard  return, ' ' 

tAnnual  report.  Division  of  Law,  1919. 

**Bai1roa(fs  and  Government,  E.  H.  Dixon,  p.  132, 


AMERICAN  RAILROADS  63 

In  addition  to  the  forms  of  contract  for  Class  1 
railroads  and  for  the  short  lines,  a  special  con- 
tract was  prepared  and  executed  by  the  Director 
General  and  the  American  Railway  Express 
Company.  That  company  was  formed  early  in 
1918  by  the  consolidation  of  the  four  jprincipal 
competing  express  companies — Adams,  Ameri- 
can, Southern  and  Wells-Fargo.  Subsequently 
the  new  company  embraced  practically  all  of  the 
smaller  express  companies. 

Prior  to  federal  control  each  railroad  granted  a 
monopoly  of  the  express  traffic  to  one  of  the  com- 
peting express  companies.  There  were  isolated 
instances  in  which  a  railroad  had  an  express  com- 
pany as  a  subsidiary  of  its  own.  Each  railroad 
made  a  contract  with  the  company  to  which  the 
express  privilege  was  granted  and  endeavored, 
under  the  play  of  competition  between  the  ex- 
press companies,  to  obtain  the  best  possible  terms. 
The  general  practise  was  for  the  express  com- 
pany to  collect  or  receive  the  express  matter, 
load  it  into  express  or  baggage  cars  at  shipping 
points,  care  for  it  while  en  route  and  unload  or 
deliver  the  shipments  at  destination.  At  largo 
terminals  the  express  company  maintained  its 
own  organization  and  express  messengers  accom- 
panied carload  shipments.  At  small  stations  the 
express  company  paid  extra  compensation  to  rail- 
road employees  to  look  out  for  express  company 
work  and  a  similar  plan  applied  to  train  baggage- 
men who  acted  for  the  express  company  in  caring 


64  AMERICAN  RAILROADS 

for  less-carload  express  shipments  by  baggage 
car.  The  railroad  provided  the  cars  and  trans- 
ported them  in  its  express  or  passenger  trains, 
and  furnished  the  express  company  with  neces- 
sary facilities  at  stations.  The  express  company 
collected  the  revenues  for  the  service,  paid  the 
railroad  a  stated  percentage  of  gross  receipts, 
and  retained  the  remainder.  The  proportion  paid 
to  railroads  ranged  from  35%  to  55%,  with 
isolated  cases  outside  of  these  usual  limits. 

When  the  railroads  were  taken  over  by  the 
Government  to  be  operated  as  one  system  under 
noncompetitive  conditions,  it  was  logical  and  in- 
evitable that  the  express  service  should  be 
similarly  unified.  Action  toward  that  end  was 
soon  taken  with  the  result  already  mentioned — 
the  formation  of  the  American  Railway  Express 
Company. 

The  new  company  then  entered  into  an  agree- 
ment with  the  Director  General  (the  initiative 
having  been  taken  by  the  Railroad  Administra- 
tion) under  which  the  American  Railway  Express 
Company  would  conduct  the  express  business 
upon  all  lines  under  federal  control  substantially 
as  was  done  under  private  operation  except  that 
certain  restrictions  as  to  routing  which  had  ap- 
plied under  competitive  conditions  were  removed 
and  the  service  was  effectively  unified.  As  com- 
pensation for  the  privilege  the  express  company 
agreed  to  pay  the  Director  General  50.25%  of  the 
gross  revenues  received  for  the  transportation  of 
express  matter  over  the  railroads  under  federal 
control.  This  percentage  was  the  average  paid 
by  all   of  the  express  companies  to  all   of  the 


AMERICAN  RAILROADS  65 

railroads  during  the  preceding  10  years.  The 
remainder  of  the  express  earnings,  after  the  pay- 
ment of  other  expenses  of  the  express  company 
and  a  cumulative  dividend  of  5%  on  its  capital 
stock  of  $30,000,000  (based  on  physical  valuation), 
was  to  be  divided  between  the  express  company, 
the  Railroad  Administration,  and  a  guaranty 
fund,  in  accordance  with  an  elaborate  plan  which 
was  favorable  to  the  Government.* 

As  no  further  reference  to  the  express  service 
will  be  made  in  this  volume  it  may  be  noted  here 
that  the  American  Railway  Express  Company 
continued  in  existence  after  the  expiration  of  fed- 
eral control  and  that  the  arrangement  under 
which  a  flat  percentage  of  50.25%  gross  receipts 
was  paid  to  all  railroads  alike,  instead  of  the 
former  varying  percentages  according  to  bargain- 
ing power  and  competitive  conditions,  is  still  in 
effect  (July,  1922).  Obviously  this  is  to  the  ad- 
vantage of  those  roads  which  received  less  than 
50.25%  under  pre-war  conditions  and  to  the  dis- 
advantage of  those  roads  which  received  more. 
Negotiations  are  now  under  way  for  a  revision 
of  the  individual  contracts. 

*Report  of  Director  General  to  President,  for  first  7  months  of 
federal  control. 


CHAPTER  VI 

POLICIES  OF  UNIFICATION 

THE  26  months  of  federal  control  may  be 
divided  into  2  distinct  periods  in  which  the 
conditions  differed  fundamentally.  The 
first  period  was  from  January  1,  1918  to  the  sign- 
ing of  the  armistice.  During  that  period  and  un- 
til January  11,  1919,  Mr.  McAdoo  was  Director 
General.  The  second  period  was  from  the  sign- 
ing of  the  armistice  until  the  end  of  federal  con- 
trol on  March  1,  1920.  During  that  time  (ex- 
cept for  the  first  2  months)  Mr.  Walker  D.  Hines 
was  Director  General. 

The  first  period  was  one  of  intensive  military 
activity.  The  sole  thought  was  to  administer  the 
railroads  as  an  effective  agency  of  the  army  and 
navy.  Officers  and  employees  were  spurred  by 
motives  of  patriotism.  The  public  cheerfully 
accepted  limited  railroad  service  and  cordially  co- 
operated with  the  Administration  in  its  efforts  to 
produce  the  maximum  of  the  kind  of  transporta- 
tion most  needed  in  the  war.  The  fact  that  the 
railroads  were  functioning  effectively  and  were 
lireaking  all  records  of  transportation  efficiency 
compensated  the  shipping  and  the  traveling  public 
for  their  sacrifices,  and  encouraged  railroad  of- 
ficers and  employees  to  do  their  utmost.  Wages 
had  been  raised  substantially;  the  high  cost  of 

66 


AMERICAN  RAILROADS  67 

living  was  not  yet  as  disturbing  a  factor  as  it  be- 
came later ;  and  the  general  morale  of  the  service 
was  fairly  satisfactor3^ 

Almost  immediately  after  the  signing  of  the 
armistice,  there  came  a  marked  slackening.  The 
spur  of  patriotism  disappeared.  The  common 
motive  to  excel  was  lacking.  The  game  was  over. 
The  war  had  been  won.  The  minds  of  both  of- 
ficers and  men  turned  to  their  personal  interests. 

Early  in  January,  1919,  the  first  of  the  pro- 
tracted hearings  on  the  return  of  the  railroads 
was  held  by  the  Senate  Committee  on  Interstate 
Commerce.  Then  began  a  country-wide  discus- 
sion of  the  railroad  problem  and  the  formulation 
of  the  many  ''plans"  for  its  solution.  To  add 
to  the  confusion  the  lid  was  lifted  from  the 
cauldron  of  dissatisfaction  on  the  part  of  ship- 
pers and  travelers.  With  the  conclusion  of  mili- 
tary activity  there  came  an  insistent  demand  for  a 
resumption  of  pre-war  service  and  pre-war  ship- 
ping privileges.  A  natural  reaction  set  in  against 
governmental  administration.  The  states  began 
to  assert  their  rights  and  the  shippers'  organiza- 
tions became  active  in  their  criticism.  An  agita- 
tion was  started  to  restore  the  rate-making  power 
of  the  Interstate  Commerce  Commission  and  a 
Congressional  bill  designed  to  bring  it  about  failed 
only  because  vetoed  by  the  President. 

Coupled  with  these  disturbing  factors,  the  cost 
of  living  continued  to  mount.  Railroad  employees 
had  expected  prices  to  drop.  The  higher  wage 
awards  of  the  Railroad  Administration  were 
found  to  have  less  purchasing  power  than  the  pre- 
war wages.     The  spirit  of  unrest  found  expres- 


68  AMERICAN  RAILROADS 

sion  in  insistent  demands  for  further  wage  in- 
creases. The  appeal  of  patriotism  could  no 
longer  be  invoked,  and  the  general  feeling  of  dis- 
content Antli  economic  conditions  in  all  lines  of 
business  seriously  undermined  the  morale  of  rail- 
road service. 

Observing  the  distinction  between  the  char- 
acteristics of  the  first  and  the  second  year  of 
federal  control,  attention  will  be  directed  first  to 
a  review  of  1918,  with  particular  reference  to  the 
methods  adopted  under  the  policy  of  unification 
and  standardization.  This  policy  was  applied 
principally  to  the  features  of  operation  enumer- 
ated below. 

Joint  use  of  passeufi^er  and  freight  terminals. 
Joint  use  of  yards  and  engine  houses. 
Consolidation  of  car  inspection  forces. 
Joint  use  of  running  tracks. 
Joint  use  of  motive  power  and  cars. 
Short-routing  of  freight. 

Diversion  of  export  traffic  to  southern  ports. 
Consolidation  of  city  ticket  offices. 
Abolition  of  off-line  offices. 
Elimination  of  competitive  activities. 
Standardization  of  new  locomotives  and  cars. 
Simplification  of  inter-road  accounting. 
Standardization  of  operating  statistics. 

The  Railroads'  War  Board  had  made  consider- 
able progress  in  arranging  for  the  joint  use  of 
terminals,  other  facilities,  and  equipment,  but  the 
United  States  Railroad  Administration  went 
much   further.      The   attention   of   the   regional 


AMERICAN  RAILROADS  09 

directors  was  concentrated  upon  this  feature  of 
operation  during  the  first  few  months  of  federal 
control  and  the  Director  General  stressed  it.  The 
1918  annual  reports  of  the  regional  directors 
claim  large  savings  in  operating  expenses  by  rea- 
son of  unification  of  facilities,  but  these  estimates 
of  economies  must  be  accepted  with  reservations. 
In  many  cases  the  apparent  savings  at  one  point 
were  partly  offset  by  additional  expenses  else- 
where.* In  many  cases,  too,  they  were  made  at 
the  cost  of  much  inconvenience  to  the  shipping 
and  traveling  public.  On  the  whole,  however, 
there  were  real  net  savings  and,  what  was  more 
important,  the  capacity  of  the  roads  as  a  national 
system  to  produce  ton-miles  and  passenger-miles 
w^as  increased. 

The  example  best  known  to  the  public  was  the 
joint  use  of  the  Pennsylvaiiia  New  York  C^ity 
terminal  bj^  the  passenger  trains  of  the  Pennsyl- 
vania, Baltimore  &  Ohio,  and  Lehigh  Valley  roads. 
Such  common  use  of  the  new  terminal  was  not 
contemplated  when  it  was  designed,  but  the  plan 
proved  to  be  feasible  and  it  resulted  in  better 
service  to  the  public.  In  freight  service  one  of 
the  best  examples  was  in  Chicago.  Its  terminal 
district  embraces  an  area  of  about  2,500  square 
miles.     It  is  served  by  40  railroads  which  at  that 

*The  annual  estimated  savings  through  joint  use  of  terminals, 
yards,  and  like  facilities  were  estimated  in  1918  as  follows:  East- 
ern region,  $4,172,000;  Allegheny  region,  $4,037,526;  Pocahontas 
region,  $1,495,603;  Southern  region,  $2,182,260;  Northwestern 
region,  $4,888,993;  Central  Western  region,  $5,325,000;  South- 
western region,  $1,434,000;  total  $23,535,382.  A  substantial  part 
of  this  gross  saving  was  offset  by  increases  in  other  costs. 


70  AMERICAN   RAILROADS 

time  wore  interchanging  about  -40,000  cars  daily. 
Plans  were  worked  out  under  federal  control  by 
which  the  Elgin,  Joliet  &  Eastern  Railroad  was 
used  more  extensively  as  a  connecting  link  be- 
tween the  eastern  and  the  western  trunk  lines  for 
the  handling  of  through  freight  not  requiring 
icing,  while  perishable  freight  was  concentrated 
on  the  Indiana  Harbor  Belt  Line.  Industries  on 
the  St.  Charles  Air  I^ine  were  formerly  served  by 
the  separate  switching  locomotives  and  crews  of 
19  railroads.  The  new  plan  provided  that  the 
Illinois  Central  forces  should  do  all  of  the  work 
for  itself  and  for  the  eastern  lines  (with  the  ex- 
ception of  the  ^Michigan  Central) ;  and  the  Bur- 
lington forces  were  to  do  all  of  the  work  for  the 
western  lines.  Passenger  trains  of  the  Baltimore 
&  Ohio  and  of  the  Pere  Marquette  between  Pine 
Junction  and  Sixteenth  Street  were  diverted  to 
the  Pennsylvania  tracks  in  both  directions,  thus 
freeing  the  Baltimore  &  Ohio  Chicago  terminal 
of  all  passenger  business  with  its  retarding  effect 
on  the  freight  service,  shortening  the  run  of  these 
passenger  trains  by  7  miles  and  their  running 
time  by  40  minutes.* 

All  of  the  regional  directors  in  their  1918  an- 
nual reports  gave  imposing  lists  of  instances  of 
unification  or  consolidation  of  physical  facilities. 
The  Allegheny  region  alone  reported  875  cases; 
the  Southern,  140;  and  the  Southwestern,  272. 
^lost  of  these  unifications  were  relatively  unim- 
portant individually,  but  they  included  practically 
all    of   the   important    terminals    tiiroughout   the 

'Failwai/  Age,  vol.  68,  p.78,  .Tnnuary  2,  1920. 


AMERICAN  RAILROADS  71 

country.  The  degree  of  unification,  of  course, 
had  a  wide  range  of  difference,  according  to 
practicability.  In  some  cases  it  ^vas  comprehen- 
sive; in  other  cases  very  slight.  Where  there 
were  two  or  more  engine  houses  of  different  cor- 
porate ownership  it  was  found  feasible  in  a  few 
cases  to  close  one  or  more  of  them  and  to  concen- 
trate the  work  in  one.  Such  a  plan  worked  well 
at  Galveston.  The  separate  car  inspection  forces 
maintained  by  the  individual  roads  to  protect 
their  individual  interests  under  private  operation 
were  consolidated  into  one  joint  force  at  a  large 
number  of  interchange  points.  In  some  cases  one 
freight  station  was  used  for  the  business  of  two 
or  more  roads  and  the  stations  from  which  the 
business  was  diverted  were  closed.  At  some 
points  savings  were  made  by  having  all  of  the 
switching  service  performed  by  one  road  where, 
under  competitive  conditions,  separate  switching 
service  had  been  performed  by  all  of  tlie  compet- 
ing carriers. 

The  same  principle  was  applied  to  the  joint 
use  of  running  tracks  where  such  action  was  ad- 
visable. For  example,  Baltimore  &  Ohio  trains 
between  McKeesport  and  New  Castle  were  di- 
verted over  the  tracks  of  the  Pittsburgh  &  Lake 
Erie  and  the  Pennsylvania,  where  one  locomotive 
could  handle  as  many  tons  as  five  locomotives 
could  handle  between  the  same  points  on  the  Balti- 
more &  Ohio.  Coal  and  coke  from  the  lower  Con- 
nellsville  region  on  the  Baltimore  &  Ohio  road 
were  routed  over  the  Monongahela,  the  Pittsburgh 
&  Lake  Erie,  and  the  Pennsylvania  lines  to  the 


72  AMERICAN  RAILROADS 

Pittsburgh  district,  thus  releasing  the  Baltimore  & 
Ohio  lines  for  eastward-bound  traffic,  principally 
coal  from  the  Fairmont  district  to  seaboard. 
Or  again,  traffic  which  formerly  had  moved  from 
the  Baltimore  &  Ohio  lines  in  the  West  Virginia 
coal  regions  and  the  Pittsburgh  district  via  Balti- 
more and  Philadelphia  was  routed  via  Kutherford 
and  the  Philadelphia  &  Reading  road,  thus  keep- 
ing such  traffic  out  of  the  congested  districts  at 
Baltimore.* 

Between  Pueblo  and  Denver,  a  distance  of  118 
miles,  and  between  Wells,  Nevada,  and  Winne- 
mucca,  Nevada,  a  distance  of  185  miles,  the  single 
tracks  of  two  separate  railroads  were  operated 
as  the  double  track  of  one  railroad,  thereby  in- 
creasing their  combined  capacity. f  A  similar  ar- 
rangement on  a  smaller  scale  was  applied  to 
paralelling  tracks  of  the  Boston  &  Maine  and  the 
Central  Vermont  in  the  upper  valley  of  the  Con- 
necticut. 

Between  Oakland  and  San  Francisco  separate 
ferry  services  had  been  operated  by  the  Southern 
Pacific,  the  Santa  Fe,  and  the  Western  Pacific 
roads.  As  the  ferry  facilities  of  the  Southern 
Pacific  were  ample  to  serve  the  traffic  of  the  three 
roads,  the  passenger  trains  of  the  Sante  Fe  and  of 
the  Western  Pacific  were  brought  into  the  Oak- 
land Mole,  and  their  passengers  used  the  ferries 
of  the  Southern  Pacific. | 

The  utilization  of  motive  power  was  made  much 
more  effective  through  imified  control.     Surplus 

*1918  Annual  Report,  Regional  Director,  Allegheny  Region, 
tibid.,  Division  of  Operation.     Jlbid. 


AMERICAN  RAILROADS  73 

power  on  one  road  or  in  one  region  was  quickly 
transferred  to  another  road  or  region  where  a 
shortage  existed.*  When  the  shop  facilities  of 
one  road  were  inadequate,  or  were  overtaxed  by 
locomotives  in  need  of  repairs,  some  of  these  loco- 
motives were  taken  to  other  roads  with  greater 
shop  capacity  and  there  repaired.  Baltimore  & 
Ohio  locomotives,  for  example,  were  repaired  in 
shops  of  roads  in  the  Northwest  region. 

In  the  case  of  freight  cars,  which  had  practi- 
cally been  pooled  under  the  operations  of  the  Rail- 
roads'  War  Board,  the  pooling  under  federal  con- 
trol was  made  much  more  complete.  During  the 
greater  part  of  federal  control  the  payment  of  car 
hire  {per  diem  charges)  as  between  roads  in  fed- 
eral control  was  waived,  and  each  road  was  in- 
structed, as  regards  running  repairs  or  shop  re- 
pairs, to  give  the  same  care  to  cars  of  other  roads 
as  it  gave  to  its  o^^^l  cars.f 

The  Car  Service  Section  had  complete  control 
over  distribution,  and  shifted  the  cars  without  re- 
gard to  ownership  to  where  they  were  most 
needed.  In  the  process  of  distribution  of  empties, 
the  cars  were  often  dispatched  in  solid  train  lots 
as,  for  example,  when  they  were  urgently  needed 
in  the  West  early  in  the  spring  of  1918  for  the 
movement  of  food  for  export.  These  trains  of 
empties  were  arbitrarily  routed  via  the  roads 
which  could  handle  them  most  expeditiously  and 

*The  practise  of  transferring  locomotives  from  one  road  to 
another  road  had  been  inaugurated  by  the  Eailroads'  War  Board- 

tThis  plan  did  not  work  satisfactorily.  It  ■will  be  discussed 
further  in  reviewing  the  results  of  1919. 


74  AMERICAN  RAILROADS 

with  the  least  interference  with  loaded  car  move- 
ment. The  normal  car  service  rules,  which  pro- 
vide that  the  burden  of  the  empty  movement  shall 
be  assumed  by  the  road  or  roads  which  received 
the  revenue  from  the  loaded  movement,  were  set 
aside.  This  policy  naturally  resulted  in  a  some- 
what higher  percentage  of  empty  car-miles  to 
total  car-miles,  and  caused  distortions  in  the  car 
performance  records  of  individual  carriers,  but 
the  losses  were  counterbalanced  by  a  reduction  in 
car  shortage  at  the  points  where  the  traffic  of 
vital  importance  originated. 

Mention  should  here  be  made  of  the  policy  of 
dispatching  solid  trains  of  foodstuffs  and  other 
freight  of  similar  character  from  the  West  intact 
to  the  seaboard.  Though  this  is  not  an  economi- 
cal method  of  transportation  (because  the  maxi- 
mum economical  weight  of  the  train  varies  with 
Ihe  rate  of  the  grades  and  the  power  of  the  loco- 
motive, and  these  differ  widely  on  individual  rail- 
roads) the  practise  did  much  to  expedite  the  move- 
ment of  supplies  then  badly  needed  on  the  battle 
fronts. 

The  first  general  order  issued  by  the  Director 
General  (No.  1,  December  29,  1917)  directed  that 
shippers'  designation  of  routes  should  be  disre- 
garded when  freight  might  bo  moved  with  greater 
expedition  or  more  efficiently  by  other  routes.  It 
provided  also  that  traffic  agreements  between  car- 
riers were  not  to  be  allowed  to  interfere  with  ex- 
peditious movement.  This  has  been  called  the 
policy  of  short-routing  of  freight.     It  was  fre- 


AMERICAxN  RAILROADS  76 

quently  referred  to  by  Mr.  McAdoo  in  reports  and 
public  statements  as  an  important  reform  in- 
stituted under  federal  control.  In  the  writer's 
opinion  the  importance  of  this  factor  has  been 
much  overestimated.  It  is  true  that  the  annual 
reports  of  the  regional  directors  contain  refer- 
ences to  large  savings  in  car-miles.  These,  at 
very  best,  are  estimates,  and  even  if  they  were 
correct,  the  estimated  savings  w^ere  but  a  frac- 
tion of  one  per  cent  of  the  total  car-miles.  In 
practise  it  was  found  that  the  traffic  suffered 
least  delay  when  moved  via  the  normal  routes.  A 
shifting  of  the  load  from  the  longer  to  the  shorter 
route  frequently  found  the  latter  under-equipped 
for  the  overload,  and  resulted  in  congestion. 
Savings  based  on  estimated  reductions  in  car- 
miles  were  in  many  cases  entirely  neutralized  by 
the  higher  costs  of  moving  the  cars  via  the  shorter 
and  more  congested  routes. 

To  some  extent  the  strain  caused  by  the  unusual 
volume  of  export  freight  traffic  was  lessened  by 
the  work  of  the  Exports  Control  Committee.  It 
consisted  of  a  representative  of  the  United  States 
Railroad  Administration,  a  major  general  repre- 
senting the  army,  a  rear  admiral  representing 
the  navy,  a  steamship  executive  representing  the 
Shipping  Control  Committee,  and  a  traffic  expert 
representing  the  Allies.  This  committee  was 
created  on  June  11,  1918,  for  the  purpose  of  de- 
termining the  probable  amount  of  freight  to  be 
exported  for  war  purposes  and  to  work  out  a  plan 
for  its  most  effective  distribution  through  the  sev- 
eral ports.    As  a  result  of  its  conferences,  and  in 


76  AMERICAN   RAILROADS 

cooperation  with  tlie  Railroad  Adraiiiiatration  and 
the  Shipping  Board,  a  substantial  portion  of  the 
export  freight,  principally  for  the  Allies,  which 
normally  would  move  through  the  North  Atlantic 
ports,  was  diverted  to  the  South  Atlantic  and  Gulf 
ports. 

Another  phase  of  unification,  familiar  to  the 
public,  was  in  the  consolidated  ticket  offices.  In 
more  than  100  of  the  important  cities  in  the  coun- 
try the  "up  town"  selling  of  tickets,  both  railroad 
and  Pullman,  was  concentrated  in  one  ofl&ce  which 
took  the  place  of  a  number  of  separate  ticket  of- 
fices in  each  city.  In  New  York  and  in  Chicago 
more  than  one  consolidated  ofiBce  was  found  neces- 
sary, but  in  the  other  cities  the  single  central  city 
office  was  substituted  for  the  separate  offices  of 
the  local  and  ''off-line"  roads.  At  the  same  time 
all  arrangements  between  the  railroads  and  tour- 
ist or  similar  agencies  were  canceled.  In  all,  101 
consolidated  ticket  offices  were  established.  They 
took  the  place  of  564  passenger  offices  which  were 
in  existence  prior  to  federal  control.  In  his  re- 
port to  the  President,  for  the  seven  months  ended 
July  31,  1918,  the  Director  General  estimated  that 
the  closing  of  the  oif-line  agencies  and  the  con- 
solidation of  ticket  offices  represented  a  yearly 
saving  of  $16,566,633,  to  which  he  added  an  item 
of  $7,000,000  to  be  saved  by  the  practical  elimina- 
tion of  advertising,  making  a  total  estimated  sav- 
ing in  the  three  items  of  $23,566,633. 


CHAPTER  VII 

STANDARDIZING  THE  DESIGN  OF  EQUIPMENT 

MUCH  publicity  was  given  to  the  Adminis- 
tration's policy  of  standardizing  the  de- 
sign of  locomotives  and  freight  cars.  Mr. 
McAdoo's  statement  that  there  were  "2023  dif- 
ferent styles  of  freight  cars  and  almost  as  many 
different  descriptions  of  locomotives,"*  appealed 
to  the  public  imagination,  as  did  also  his  an- 
nouncement that  a  committee  of  experts  of  the 
Railroad  Administration  had  agreed  upon  12 
standard  types  of  freight  car  and  6  standard  types 
of  freight  locomotive  of  two  weights  each. 
Obviously  the  process  of  standardization  would 
make  the  problems  of  new  construction  much 
easier  and  eventually  w^ould  reduce  the  cost  of 
maintenance.  In  1918  the  Director  General  or- 
dered 1,430  locomotives  and  100,000  freight  cars 
of  standard  design. 

Under  the  terms  of  the  contract  between  the 
Director  General  and  the  railroad  companies  the 
Director  General  was  required  to  secure  the  ap- 
proval of  the  corporation  before  he  could  per- 
manently assign  any  of  the  new  standard  equip- 
ment to  that  corporation.  There  was  much  op- 
position to  the  universal  adoption  of  these  stand- 
ards and  long  drawn  out  controversies  over  the 
assignment  of  the  new  equipment  to  the  individual 

•Report  to  the  President,  for  seven  months  ended  July  31,  1918, 

77 


78  AMERICAN   RAILROADS 

companies.  The  Railway  Age,  the  leading 
technical  railroad  journal,  devoted  much  space  to 
criticism  of  the  policy,*  and  much  time  and  effort 
were  expended  by  the  spokesmen  for  the  Admin- 
istration in  defending  it. 

An  analysis  of  the  conflicting  views  on  the  sub- 
ject indicates,  however,  that  the  railroad  com- 
panies had  no  quarrel  with  standardization  as  a 
principle.  Practically  all  of  the  negative  argu- 
ments attached  to  the  degree  in  which  the  prin- 
ciple was  applied.  Many  of  the  larger  railroad 
systems,  such  as  the  Pennsylvania,  the  Union 
Pacific,  and  the  Southern  Pacific,  had  been  follow- 
ing the  principles  of  standardization  for  years, 
and  the  Master  Car  Builders'  Association  and  the 
American  Railway  Association  had  made  sub- 
stantial progress  toward  standardization  in 
freight  car  design.  There  was  a  natural  resent- 
ment against  the  upsetting  of  these  programs  by 
the  enforced  adoption  of  new  standards  which  had 
been  somewhat  hurriedly  adopted  by  Adminis- 
tration experts  of  no  greater  professional  stand- 
ing than  the  experts  of  the  larger  individual  sys- 
tems, who  had  a  more  intimate  knowledge  of  the 
peculiar  local  needs. 

Many  flaws  may  be  picked  in  the  details  of  the 
Government  standards.  It  can  easily  be  showTi 
that  the  requirements  of  an  individual  road  cannot 

•There  was,  of  course,  strong  opposition  from  manufacturers 
of  special  parts  or  appliances.  The  specifications  for  new  equip- 
ment were  so  drawn  as  to  exclude  certain  of  these  specialties  and 
to  favor  others  as,  for  example,  in  the  case  of  friction  draft  gear 
for  freight  cars. 


AMERICAN  RAILROADS  79 

be  efficiently  met  by  any  one  of  the  twelve  stand- 
ard types  of  locomotive.  On  one  road,  for  ex- 
ample, the  lighter  type  of  locomotive  designed  for 
slow  freight  service  was  not  qnite  powerful 
enough  to  haul  the  train  which  the  locomotive  of 
local  design  could  haul.  The  heavier  type  of 
standard  locomotive,  on  the  other  hand,  exceeded 
the  capacity  of  the  bridges.  That  road  had  to 
choose  between  a  loss  in  train-loading  efficiency 
with  the  lighter  type  of  locomotive,  or  undertake 
an  expensive  program  of  bridge  strengthening  or 
rebuilding  at  a  time  when  both  labor  and  materials 
were  scarce.  If  it  accepted  the  second  alterna- 
tive it  faced  the  fact  that  the  additional  capital  ex- 
penditures for  bridges  would  earn  returns  only  on 
the  heavier  trains  hauled  by  the  relatively  few 
new  locomotives  and  could  not  avail  itself  fully  of 
the  additional  capacity  of  its  line  until  all  of  its 
own  standard  of  locomotive  were  displaced  by  the 
heavier  standard  of  the  United  States  Railroad 
Administration. 

In  another  case  a  road  with  heavy  grades  had 
worked  out  a  design  of  locomotive  which  with  a 
lighter  type  as  a  helper  on  the  maximum  grade 
gave  a  maximum  of  power  utilization  both  on  the 
minor  grades  with  one  locomotive  and  the  major 
grade  with  two  locomotives.  In  that  case  there 
was  no  possible  combination  with  the  new  stand- 
ards which  would  give  the  same  degree  of  train- 
loading  efficiency. 

It  was  plain,  therefore,  that  the  Administra- 
tion's locomotive  standards  were  too  few  in  num- 
ber to  meet  all  of  the  requirements  of  the  different 


80  AMERICAN  RAILROADS 

physical  and  traffic  characteristics  of  the  160 
Class  1  roads  in  federal  control.  And  it  was 
equally  plain  that  some  compromise  might  profit- 
ably be  made  between  a  policy  of  arbitrarily  fix- 
ing a  few  types  to  meet  all  conditions  and  a  policy 
of  individuality  and  regard  only  for  local  needs. 
Two  or  three  times  the  number  of  types  prescribed 
by  the  Administration  would  probably  save  nearly 
all  of  the  advantages  of  standardization  and  at 
the  same  time  would  give  each  road  the  oppor- 
tunity to  select  a  type  or  types  which  it  could  use 
without  loss  of  efficiency. 

The  case  for  the  standardization  of  the  freight 
car  is  stronger.  Locomotives  ordinarily  are  con- 
fined in  service  to  the  rails  of  the  o-wuing  com- 
pany. Freight  cars  are  used  in  common  under 
car  service  rules  and  the  per  diem  rules  agree- 
ment. They  are  repaired  (with  certain  excep- 
tions) on  the  road  where  the  need  of  the  repairs 
develops.  The  average  freight  car  of  an  individ- 
ual road  is  at  home  not  much  more  than  one-half 
of  the  time.  Obviously  if  there  is  a  common 
standard  for  the  types  of  car  used  for  the  great 
bulk  of  the  interchanged  traffic,  each  road  will  be 
required  to  carry  a  much  smaller  stock  of  repair 
parts,  and  there  will  be  a  reduction  in  the  time 
now  lost  by  cars  which  are  held  while  the  repair- 
ing road  is  obtaining  parts  of  special  design. 

Yet  here,  as  in  the  case  of  locomotives,  local 
traffic  characteristics  have  an  important  bearing. 
The  granger  roads  have  found  it  advisable  to  de- 
sign their  box  cars  ^vith  a  special  view  to  the 


AMERICAN  RAILROADS  81 

requirements  of  the  grain  traffic  wliich  they  orig- 
inate. The  roads  serving  the  Michigan  peninsula 
have  found  it  necessary  to  consider  the  special 
requirements  of  automobile  shipments.  The  rail- 
roads of  Maine  must  look  to  the  peculiar  needs  of 
the  potato  traffic.  One  type  of  box  car  cannot  be 
ideal  for  all  classes  of  traffic.  Then,  too,  there  is 
the  debatable  point  of  weight  of  frame  and 
trucks.  The  standards  of  the  Railroad  Admin- 
istration differed  materially  from  those,  for  ex- 
ample, of  the  Southern  Pacific.  The  Harriman 
Lines  had  been  leaders  in  the  movement  toward 
standardization.  Their  freight  car  standards 
were  the  results  of  a  very  careful  study  of  experts 
over  a  series  of  years.  The  officers  of  that  com- 
pany, therefore,  quite  naturally  objected  to  the 
permanent  acceptance  of  other  standards  pre- 
pared under  war-time  pressure  by  engineers 
whose  qualifications  were  no  greater  than  those 
of  their  own  engineers  and  consultants. 

The  objections  of  the  Southern  Pacific  are  men- 
tioned specifically  because  Chairman  Kruttschnitt 
of  that  company,  in  discussing  the  subject  with 
other  railroad  executives  when  the  continuation 
of  Railroad  Administration  standards  was  un- 
der consideration  at  the  conclusion  of  federal  con- 
trol, made  the  point  that  the  excess  weight  in  the 
Railroad  Administration  standard  box  car  over 
the  Southern  Pacific  standard  was  not  justified  by 
traffic  or  engineering  requirements,  and  that  this 
excess  weight  meant  a  needless  expense,  not  only 
in  first  cost,  but  also  in  train  operating  expenses 
because  of  the  increase  in  the  dead  weight  of  the 
train. 


CHAPTER  VIII 

ACCOUNTING  AND  STATISTICAL  INNOVATIONS 

THE  transition  from  private  to  federal  con- 
trol, the  separation  of  the  accounts  as 
between  the  corporation  and  the  Govern- 
ment, and  the  provisions  of  the  contract  between 
the  Director  General  and  the  railroad  companies, 
necessitated  a  great  deal  of  additional  accounting 
work.  Shortly  after  federal  control  began,  and 
before  the  separation  was  made  between  federal 
and  corporate  accounting  forces,  the  railroads 
were  instructed  to  keep  two  sets  of  accounts — one 
reflecting  federal  transactions,  the  other  reflecting 
the  affairs  of  the  railroad  company.*  When  the 
federal  and  corporate  forces  were  split,  the 
former  was  concerned  only  with  the  federal  ac- 
counts; but  very  heavy  additional  burdens  were 
placed  upon  the  accounting  department  by  the 
special  accounts  and  statistics  required  by  the 
Director  General,  the  Division  of  Accounting,  the 
Division  of  Capital  Expenditures,  and  other  de- 
partments of  the  Administration.  In  July,  came 
still  further  burdens,  from  the  order  requiring 
the  standardization  of  operating  statistics  in 
greater  detail  than  had  been  customary  on  the 
majority  of  roads. 

As  an  offset  to  these  additional  burdens,  sev- 
eral innovations  were  ordered  which  had  the  effect 

•General  Order  No.  17,  April  3,  1918. 

82 


AMERICAN  RAILROADS  88 

of  reducing  the  normal  accounting  requirements 
pertaining  to  inter-road  transactions.    Since  the 
policies  of  unification,  diversion  of  traffic,  Voohng 
of  freight  cars,  and  many  other  practises  tended 
to  destroy  the  normal  relation  of  operating  ex- 
penses to  operating  revenues   of   an  individual 
road,  several  accounting  short-cuts  were  author- 
ized. While  the  diversion  of  traffic  and  the  unifi- 
cation of  facilities  and  equipment  might  distort 
the  records  of  performance  and  earnings  of  an 
individual    railroad,    the    Government   was    pri- 
marily interested  in  the  net  results  for  all  of  the 
roads  as  a  national  system.    It  was  not  particu- 
larly interested  in  the  absolute  accuracy  of  the 
accounts  of  an  individual  road  as  a  unit  or  m  its 
relation  with  other  roads.    It  will  be  shown  later 
that  the  operating  efficiency  of  the  individual  units 
could  be  determined  by  the  new  system  of  oper- 
ating statistics. 

The  first  step  in  the  simplification  of  revenue 
accounting  was  the  adoption  of  the  universal 
interline  waybill.*  The  plan  provided  that  all 
freight  moving  as  through  shipments  over  the 
rails  of  two  or  more  railroads  was  to  be  billed 
through  from  point  of  origin  to  destination  re- 
gardless of  the  absence  of  joint  rates.  This 
method  elinunated  a  great  deal  of  re-billing  at 
junction  points,  reduced  the  delay  to  freight  on 
that  account,  and  simplified  revenue  accounting. 

•  General  Order  No.  11 ;  March  16,  1918. 


8i  AMERICAN  RAILROADS 

Then  came  the  instructions*  to  discontinue  the 
technical  and  arithmetical  checking  of  bills  as 
between  roads  in  federal  control.  This  change 
was  meant  to  apply  particularly  to  the  tens  of 
thousands  of  inter-road  bills  each  month  for 
freight  claims,  car  repairs,  equipment  rents,  joint 
facilities  and  the  like,  and  the  statements  pertain- 
ing to  the  settlement  of  joint  revenues  on  inter- 
line freight  and  passenger  traffic.  The  billing 
road  was  enjoined  to  use  care  in  the  preparation 
of  the  bill  and  the  debtor  road  was  obliged  to 
assume  its  technical  and  arithmetical  accuracy. 

The  next  step**  provided  simplified  bases  for 
the  apportionment  of  interline  freight  revenue. 
Instead  of  continuing  the  former  plan  under  which 
each  road  determined  from  the  waybill  records 
the  balance  due  it  from  each  road  and  the  amount 
of  its  indebtedness  to  each  road,  the  debit  or 
credit  balances  as  between  roads  were  to  be  based 
on  what  were  termed  "road  to  road  per  cents." 
These  per  cents  were  to  be  computed  for  each 
route  from  the  records  of  1917.  In  effect  the  new 
plan  provided  for  a  division  of  joint  freight 
revenues  as  between  carriers  in  the  same  propor- 
tions that  such  revenues  on  interline  freight  traffic 
were  divided  in  the  year  preceding  federal  con- 
trol. Later  on  a  ** short  cut"  was  authorized  for 
the  simplification  of  interline  passenger  rev- 
enues.! 

A  further  reduction  in  accounting  work  was  au- 
thorized on  June  12^  when  accounting  for  freight 

"General  Order  No.  20,  April  22,  1918. 
♦General  Order  No.  21,  April  22,  1918. 
tGeneral  Order  No.  32,  June  29,  1918. 
JGeneral  Order  No.   31,   June   12,   1918. 


AMERICAN  RAILROADS  85 

car  hire  {per  diem)  was  discontinued  as  between 
roads  in  federal  control.  Simplified  bases  were 
provided  also  in  the  same  order  for  the  making 
of  bills  for  joint  facilities,  and  under  date  of  Oc- 
tober 5  a  plan  for  reducing  the  accounting  work 
connected  with  the  exchange  of  bills  for  repairs 
to  equipment  was  made  effective.* 

Under  the  rules  of  the  Interstate  Commerce 
Commission  the  accounting  practises  of  the  rail- 
roads have  been  standardized  for  many  years. 
To  a  very  limited  extent  this  standardization  ap- 
plied to  the  statistics  of  performance — locomo- 
tive-miles, train-miles,  car-miles,  ton-miles,  and 
passenger-miles.  But  no  steps  had  been  taken 
to  bring  about  uniformity  in  the  field  of  operating 
statistics.  Each  road  had  gone  its  own  way  in 
developing  the  reports  which  were  designed  to 
show  the  efiiciency  of  the  various  operating  ac- 
tivities and  to  reflect  unit  costs. 

The  need  for  luiiformity  in  this  field  as  well 
as  in  the  field  of  accounting  was  realized  when  an 
attempt  was  made  during  the  first  three  months 
of  federal  control  to  put  together  a  composite 
picture  of  operating  results  from  the  large  num- 
ber of  special  reports  which  had  been  sent  to 
the  Director  General  at  his  request.  There  was 
so  much  diversity  in  the  content  of  the  reports 
and  in  the  bases  used  that  it  was  impracticable 
so  to  combine  the  figures  as  to  show  the  results 
for  a  region  or  for  the  railroads  as  a  whold. 

To  meet  the  needs  an  Operating  Statistics  Sec- 
tion was  organized  early  in  ]\Iay  and,  effective 

•General  Order  No.  47,  October  5,  1918. 


86  AMERICAN   RAILROADS 

August  1,  a  system  of  standardized  operating 
statistics  Avas  promulgated.  AVhile  the  new  plan 
was  designed  primarily  to  supply  the  central  ad- 
ministration and  the  regional  directors  with  the 
necessarj'  information  for  each  road  and  each 
region,  the  forms  were  drawn  so  as  to  be  equally 
valuable  for  intra-railroad  purposes.  As  a  result 
the  complete  statistical  indices  of  performance 
and  operating  efficiency  were  made  available  to 
the  operating  officers  of  all  railroads  and  to  the 
public,  as  well  as  to  the  Railroad  Administration, 
without  the  former  uncertainties  and  qualifica- 
tions as  to  bases  and  methods.  The  operating 
officers  were  furnished  with  much  more  informa- 
tion than  they  had  ever  before  had  concerning 
neighboring  roads  with  which  they  could  fairly 
make  comparisons,  and  in  the  majority  of  cases 
the  new  reports  gave  them  more  information  con- 
cerning their  own  roads  than  theretofore  had 
been  available  to  them.* 

*See  Annalti  of  the  American  Academy  of  Political  and  Social 
Science,  November,  1019,  "The  AecompHshments  of  the  United 
States  Railroad  Administration  in  Unifying  and  Standardizing 
the  Statistics  of  Operation, ' '  by  present  writer-  The  article  is 
reprinted  in  full  in  the  Appendix. 


CHAPTER   IX 


PASSENGER  AND  FREIGHT  SERVICE  IN  1918 

WITH  the  United  States  Railroad  Adminis- 
tration pledged  to  the  purpose  of  operat- 
ing the  railroads  so  that  they  would  assist 
most  effectively  in  war,  it  was  inevitable  that 
there  would  be  a  curtailment  in  service  for  civil- 
ian travelers  and  Hmitations  upon  the  transpor- 
tation of  non-essential  freight. 

One  of  Mr.  McAdoo's  first  public  statements  as 
Director  General  dealt  with  the  reductions  in 
passenger  train  service.  It  was  dated  January  5, 
1918,  and  read  as  follows : 

''An  important  change  in  the  passenger  train  service 
on  the  eastern  roads  goes  into  effect  Sunday,  Januarj'  6. 
I  have  consented  to  this  change  because  it  is  impera- 
tively necessary  that  passenger  travel  shall  be  reduced 
as  much  as  possible  during  the  present  serious  emer- 
gency which  confronts  the  people  in  the  eastern  section 
of  the  country.  By  elimination  of  unnecessary  passen- 
ger train  service,  much  motive  power,  skilled  labor, 
track  and  terminal  facilities  are  released  for  the  han- 
dling of  coal  and  food  and  other  supplies  essential  to 
the  life  of  the  people  as  well  as  to  the  successful  prose- 
cution of  the  war.  Every  patriotic  citizen  can  directly 
help  the  Government  in  clearing  up  the  present  unsat- 
isfactory situation  on  the  railroads  by  refraining  from 
all  unnecessary  travel  at  this  time. 


87 


88  AMERICAN   RAILROADS 

"The  breakdown  in  passenger  service  of  the  various 
railroads  in  the  East  has  not  made  a  pleasant  impres- 
sion on  the  public,  but  it  must  be  borne  in  mind  that  the 
railroad  companies  in  the  East  are  still  seriously  con- 
gested with  an  unusual  amount  of  freight  traffic,  the 
movement  of  which  is  more  vital  to  the  country  than 
the  movement  of  passengers,  and  that  the  weather  con- 
ditions for  the  past  two  weeks  have  seriously  impeded 
railroad  operations," 

During  the  summer  of  1917  the  Railroads'  War 
Board  had  made  substantial  reductions  in  pas- 
senger train  mileage.  It  was  estimated  that  the 
curtailed  service  meant  an  annual  saving  of 
20,000,000  train-miles.  The  Director  General's 
cuts  went  much  deeper.  In  May,  1918,  he  ap- 
proved a  drastic  rearrangement  of  the  service 
west  of  Chicago.  The  reductions  were  estimated 
to  save  11,728,000  passenger  train-miles  per  year. 
I^hey  were  accomplished  by  abandoning  duplicate 
service  between  Chicago  and  the  Pacific  coast 
cities  and  assigning  to  the  short  and  direct  routes 
to  each  city  the  fastest  through  service.  Under 
this  plan  the  Santa  Fe  was  to  be  the  preferred 
route  to  Los  Angeles;  the  Chicago  &  Northwest- 
ern, the  Union  Pacific,  and  the  Southern  Pacific 
to  San  Francisco;  the  Burlington  and  the  North- 
ern Pacific  to  Portland,  and  the  Chicago,  Mil- 
waukee &  St.  Paul  to  Seattle.  Similar  plans  were 
adopted  in  other  sections  of  the  country  as,  for 
example,  between  Chicago  and  the  Twin  Cities, 
between  Chicago  and  St.  Louis,  and  between  New 
York  and  Florida  points.  In  the  aggregate  the 
savings  in  passenger  train-miles  during  the  first 
seven  months  of  federal  control  were  at  the  rate 
of    67,290,482    per    year.      The    Administration 


AMERICAN  RAILROADS  89 

frankly  attempted  to  discourage  civilian  travel; 
but  its  appeals  apparently  made  little  impression 
upon  the  public. 

One  of  these  appeals  was  made  in  a  public 
statement  by  Theodore  H.  Price,  of  the  Director 
General's  personal  staff.  After  calling  attention 
to  the  drastic  curtailment  in  passenger  train  ser- 
vice in  Great  Britain,  and  emphasizing  the  ex- 
treme importance  of  meeting  the  heavy  trans- 
portation demands  of  troops  and  materials,  Mr. 
Price  stated: 

"Those  who  travel  unnecessarily  are  therefore  need- 
lessly overtaxing  the  railway  service  and  are  making 
themselves  and  others  who  must  travel  uncomfortable, 
and  are  really  impeding  the  prosecution  of  the  war.  To 
'Stay  at  Home'  has  now  become  a  patriotic  duty  and 
everyone  who  feels  disposed  to  'take  a  trip'  these  days 
ought  to  seriously  ask  himself  whether  it  is  necessary  or 
cannot  be  postponed  before  he  buys  his  ticket.  If  this 
habit  of  self-examination  becomes  general  the  conges- 
tion of  passenger  traffic  will  disappear,  for  there  are 
lots  of  journeys  that  are  a  waste  of  both  money  and 
time,  and  '  Home  Sweet  Home '  is  a  pretty  good  and  rest- 
ful place  after  all.  Those  who  feel  an  irresistible  desire 
to  roam  may  be  able  to  control  themselves  if  they  will 
re-read  '  Prue  and  I, '  the  charming  story  in  which  George 
William  Curtis  describes  the  imaginary  journeys  of  an 
old  bookkeeper  and  his  wife  who,  being  unable  to  afford 
the  cost  of  travel,  found  exquisite  pleasure  in  imagining 
that  they  were  visiting  the  places  described  in  the  books 
of  celebrated  travelers."  {Railway  Age,  September  6, 
1918,  p.  427) 

Notwithstanding  these  appeals  and  the  higher 
passenger  rates,  the  volume  of  passenger  traffic 
grew  steadily  and  during  the  two  years  of  federal 
control  it  exceeded  all   pre\'ious   records.     The 


90  AMERICAN  RAILROADS 

Director  General's  report  to  the  President  under 
date  of  February  28,  1920,  states  that  the  passen- 
gers carried  one  mile  in  1917  were  39,361,369,062 ; 
in  1918,  42,498,248,256;  and  in  1919,  (partly 
estimated)  46,200,000,000.  These  figures  include 
troop  movements,  but  military  traflSc  does  not 
account  for  all  of  the  increases  in  1918  and  1919. 
It  should  be  noted  further  that  the  passenger- 
miles  of  1917  also  included  heavy  troop  move- 
ments in  the  latter  part  of  the  year. 

In  addition  to  the  curtailment  in  passenger 
train  mileage  there  Avas  a  drastic  cut  in  the  num- 
ber of  parlor  cars  and  dining  cars,  as  well  as  a 
reduction  in  the  number  of  sleeping  cars.  The 
general  policy  was  to  run  only  the  number  of 
sleeping  cars  regularly  assigned  to  each  train  and 
not  to  put  on  extra  cars  and  run  extra  train  sec- 
tions except  under  unusual  circumstances.  Obser- 
vation cars  and  Pullman  smoking  and  buffet  cars 
were  practically  eliminated,  as  were  many  other 
"frills"  connected  with  the  extra-fare  trains. 

From  the  viewpoint  of  the  public,  the  consoli- 
dated ticket  offices  had  certain  advantages.  The 
traveler  could  purchase  tickets,  arrange  for 
Pullman  car  reservations,  obtain  information,  and 
secure  other  services  at  one  central  point  for  any 
or  all  of  the  routes  available  for  his  intended  trip. 
In  case  the  sleeping  cars  via  one  route  were  sold 
out,  he  could  change  to  another  route  without 
going  to  another  office.  Tickets  for  points  served 
by  two  or  more  railroads  were  honored  via  any 
route.  On  the  other  hand  there  were  certain  dis- 
advantages.    The  very  size  of  the  office  and  of 


AMERICAN  RAILROADS  91 

the  volume  of  business  transacted  required  a 
much  larger  number  of  clerks  than  had  ever 
worked  together  in  one  ticket  office.  It  took 
months  to  weld  them  into  a  smooth-working  or- 
ganization. At  the  hours  of  the  peak  load  there 
was  much  standing  in  line,  and  trying  delays.  In 
a  few  offices,  such  as  those  in  New  York  and 
Chicago,  there  was  a  subdivision  of  the  office 
organization  by  roads  or  sections  of  the  country. 
In  the  majority  of  cases,  however,  there  was  no 
such  subdivision.  A  ticket  clerk  whose  pre\ious 
experience  had  been  confined  to  one  road  or  sec- 
tion had  to  become  familiar  with  all  roads  or  sec- 
tions served  by  that  office.  This  took  time,  and  in 
the  process  there  was  a  loss  in  the  quality  of  ser- 
vice. The  defects  in  the  service  of  the  consolidated 
ticket  offices  grew  less  obvious  as  the  organiza- 
tion ''found  itself,"  and  the  clerks  became  more 
familiar  with  their  broader  range  of  work,  but 
the  typical  traveler  missed  the  former  stimulus 
of  competition  between  separate  passenger-so- 
liciting forces  with  their  intimate  knowledge  of 
their  own  roads  and  the  territories  served,  and 
their  painstaking  efforts  to  excel  in  personal  ser- 
vice. 

While  the  man  who  traveled  was  asked  to  make 
substantial  sacrifices  in  the  interest  of  the  ex- 
peditious movement  of  troops  and  of  war  mate- 
rials, it  is  doubtful  if  he  contributed  any  more  to 
the  common  cause  than  the  average  shipper  of 
freight  not  included  on  the  priority  lists.  The 
traffic  for   export   or   for   other   war   purposes, 


92  AMERICAN  RAILROADS 

which  moved  under  priority  orders,  was  such  a 
large  part  of  the  total  that  the  shipper  of  freight 
outside  of  the  priority  list — the  man  who  was  try- 
ing to  carry  on  ''business  as  usual" — had  much  to 
contend  with.  To  keep  a  complete  control  of  the 
freight  situation  and  avoid  congestions  such  as 
those  of  the  last  two  or  three  months  of  1917,  the 
embargo  method  was  so  frequently  used  that  the 
ordinary  shipper  was  kept  "guessing"  as  to 
whether  his  shipment  would  be  accepted  at  all  and 
if  accepted  when  it  would  reach  its  destination. 

The  permit  system  was  adopted  under  these 
circumstances,  and  had  much  to  commend  it.  It 
was  applied  primarily  to  export  freight,  but  to 
a  limited  extent  was  applied  also  to  domestic 
traffic  destined  to  points  in  the  congested  areas. 
The  system  had  much  to  do  with  the  reduction  in 
the  accumulation  of  freight  at  seaboard  and  pre- 
vented further  blockades.  Under  the  permit 
plan  a  shipment  for  a  seaport  or  other  designated 
destination  would  not  be  accepted  by  the  rail- 
roads at  the  shipping  point  until  a  permit  was 
issued,  and  the  permit  would  not  be  issued  until 
it  was  known  that  the  consignee  was  prepared  to 
receive  the  shipment.  Under  former  conditions 
the  shipper,  in  the  absence  of  a  specific  embargo, 
could  deliver  his  freight  to  the  railroad  regard- 
less of  the  ability  or  inability  of  the  consignee  to 
take  the  freight  on  its  arrival  at  destination.  The 
new  method  in  effect  controlled  the  flow  of  traffic 
at  the  source  and  prevented  accumulations  of 
cars  at  destination,  particularly  at  the  seaboard. 
It  proved  of  such  value  that  the  railroad  com- 


AMERICAN  RAILROADS  93 

panies,  on  the  return  to  them  of  their  lines,  re- 
tained it  as  regards  export  traffic. 

An  important  innovation  was  the  ''Sailing 
Day  Plan";  better  called  the  shipping  day  plan. 
It  was  applied  to  the  movement  of  less  than 
carload  freight  and  was  designed  to  bring  about 
the  better  utilization  of  freight  cars  by  securing 
a  heavier  average  load  per  car.  Schedules  were 
worked  out  from  the  principal  less  than  carload 
shipping  points  and  freight  of  that  class  for  cer- 
tain destinations  or  certain  transfer  points  was 
held  for  through  cars  which  would  run  on  specified 
days  of  the  week.  The  daily  loading  of  this 
freight  to  transfer  stations,  when  the  tonnage  for 
one  destination  did  not  justify  a  through  car,  had 
caused  congestion  at  many  transfer  points.  Under 
the  new  plan  the  assembly  of  less  than  carload 
shipments  into  larger  carload  units  reduced  the 
number  of  transfers  and  saved  some  of  the  delay 
to  freight. 

Yet  the  plan  was  not  generally  approved  by 
shippers,  as  it  gave  certain  distributing  centers 
an  advantage  over  other  competing  distributing 
centers  to  common  markets  when  the  traffic  from 
the  first  was  greater  than  that  from  the  second 
and  therefore  justified  more  frequent  service. 

The  abolition  of  the  off-line  freight  agencies 
took  away  a  form  of  service  which  had  not  been 
appreciated  fully  until  the  offices  were  closed. 
While  primarily  freight  soliciting  agencies,  they 
acted  also  as  bureaus  of  information  for  the  ship- 
ping public  arid  as  such  were  of  much  convenience 
to  the  shippers.  The  tracing  of  shipments  was  a 
real  value.    The  New  York  representative  of  a 


94  AMERICAN  RAILROADS 

western  road  would  obtain  reports  of  cars 
destined  to  or  coming  from  points  on  his  line  and 
on  request  would  keep  the  shippers  informed  of 
their  location  and  probable  delivery  or  arrival. 
The  offices  were  clearing-houses  for  various  kinds 
of  commercial  information,  and  the  soliciting 
forces  naturally  did  their  best  to  serve  their 
patrons  and  create  the  good  mil  so  valuable  in 
traffic  relations.  When  it  was  made  clear  to  the 
Railroad  Administration  that  this  feature  of  the 
off-line  agency  service  was  a  real  loss  to  the 
shippers,  an  attempt  was  made  to  give  similar 
information  in  central  freight  information  bu- 
reaus in  important  centers,  but  the  substitute  was 
regarded  by  the  shipping  public  as  poor. 


CHAPTER  X 


RATES  IN  1918 


IT  was  clearly  apparent  when  federal  control 
began  that  the  existing  rate  scale  would  not 
yield  sufficient  revenue  to  enable  the  Govern- 
ment to  earn  the  guaranteed  rental.  The  power 
of  the  Director  General  to  establish  rates  was 
not  determined  until  the  passage  of  the  Federal 
Control  Act.  That  power  was  defined  in  Sec- 
tions 8  and  10. 

"That  the  President  may  execute  any  of  the  powers 
herein  and  heretofore  granted  him  with  relation  to 
federal  control  through  such  agencies  as  he  may  de- 
termine, and  may  fix  the  reasonable  compensation  for 
the  performance  of  services  in  connection  therewith, 
and  may  avail  himself  of  the  advice,  assistance,  and  co- 
operation of  the  Interstate  Commerce  Commission  and 
of  the  members  and  employees  thereof,  and  may  also 
call  upon  any  department,  commission,  or  board  of  the 
Government  for  such  services  as  he  may  deem  expedient. 
But  no  such  official  or  employee  of  the  United  States 
shall  receive  any  additional  compensation  for  such 
services  except  as  now  permitted  by  law. 

"That  during  the  period  of  federal  control,  whenever 
in  his  opinion  the  public  interest  requires,  the  President 
may  initiate  rates,  fares,  charges,  classifications,  regula- 
tions, and  practises  by  filing  the  same  with  the  Inter- 
state Commerce  Commission,  which  said  rates,  fares, 
charges,  classifications,  regulations,  and  practises  shall 

96 


9G  AMERICAN  RAILROADS 

not  be  suspended  by  the  commission  pending  final  de- 
termination. 

"Said  rates,  fares,  charges,  classifications,  regula- 
tions, and  practises  shall  be  reasonable  and  just  and 
shall  take  effect  at  such  time  and  upon  such  notice  as 
he  may  direct,  but  the  Interstate  Commerce  Commis- 
sion, shall,  upon  complaint,  enter  upon  a  hearing  con- 
cerning the  justness  and  reasonableness  of  so  much  of 
any  order  of  the  President  as  establishes  or  changes  any 
rate,  fare,  charge,  classification,  regulation,  or  practise 
of  any  carrier  under  federal  control,  and  may  consider 
all  the  facts  and  circumstances  existing  at  the  time  of 
the  making  of  the  same.  In  determining  any  question 
concerning  any  such  rates,  fares,  charges,  classifications, 
regulations,  or  practises  or  changes  therein,  the  Inter- 
state Commerce  Commission  shall  give  due  considera- 
tion to  the  fact  that  the  transportation  systems  are  being 
operated  under  a  unified  and  coordinated  national  con- 
trol and  not  in  competition. 

"After  full  hearing  the  commission  may  make  such 
findings  and  orders  as  are  authorized  by  the  act  to 
regulate  commerce  as  amended,  and  said  findings  and 
orders  shall  be  enforced  as  provided  in  said  act:  Pro- 
vided, however,  That  when  the  President  shall  find  and 
certify  to  the  Interstate  Commerce  Commission  that  in 
order  to  defray  the  expenses  of  federal  control  and  op- 
eration fairly  chargeable  to  railway  operating  expenses, 
and  also  to  pay  railway  tax  accruals  other  than  war 
taxes,  net  rents  for  joint  facilities  and  equipment,  and 
compensation  to  the  carriers,  operating  as  a  unit,  it  is 
necessary  to  increase  the  railway  operating  revenues, 
the  Interstate  Commerce  Commission  in  determining  the 
justness  and  reasonableness  of  any  rate,  fare,  charge, 
classification,  regulation,  or  practise  shall  take  into  con- 
sideration said  finding  and  certificate  by  the  President, 
together  with  such  recommendations  as  he  may  make." 

It  will  be  observed  that  the  Act  gave  the  Presi- 
dent the  authority  to  initiate  rates  and  regulations 


AMERICAN  RAILROADS  97 

by  filing  the  tariffs  with  the  Interstate  Commerce 
Commission,  but  the  Commission  was  shorn  of 
its  power  to  suspend  such  rates  pending  final 
determination  of  their  justness  and  reasonable- 
ness. The  Commission  was  authorized  to  hold 
hearings  if  complaints  were  made  and,  after  such 
hearings  to  make  such  findings  or  orders  as  are 
authorized  by  the  Interstate  Commerce  Act;  but 
the  Commission  was  also  required  to  take  into 
account  the  fact  that  the  transportation  systems 
were  being  operated  under  a  unified  and  coordi- 
nated control  and  not  in  comijetition.  It  was 
provided  further  that  wlien  the  Director  General 
certified  to  the  Commission  that  increased  rev- 
enues were  necessary  to  defray  the  expenses  of 
federal  control  and  operation,  the  Commission 
should  take  such  finding  and  certificate  into  con- 
sideration in  determining  the  justness  and  reason- 
ableness of  the  Director  General's  changes  in 
rates  and  regulations. 

The  Federal  Control  Act  which  contained  tliis 
authority  was  not  approved  until  March  21,  1918. 
Steps  were  taken  at  once  to  determine  the  extent 
and  the  form  of  the  necessary  increases.  On  May 
25  an  order  was  issued  which  in  general  terms 
horizontally  increased  freight  rates  about  25% 
and  advanced  the  passenger  rate  to  3  cents  per 
mile.  TMiere  the  existing  rate  was  higher  than 
3  cents  per  mile  no  increase  was  ordered.  Sub- 
urban fares  were  increased  10%.  The  passenger 
fare  increase  as  a  whole  was  estimated  to  be 
about  20%.     A  surcharge  of  Mi   cent  per  mile 


98  AMERICAN   RAILROADS 

for  passengers  using  Pullman  cars  was  also 
ordered.  These  were  the  only  general  rate  in- 
creases initiated  by  the  United  States  Railroad 
Administration,  although  numerous  adjustments 
in  individual  rates  were  made  later,  most  of  them 
resulting  in  reductions  rather  than  increases. 

To  provide  an  effective  organization  for  the 
adjustment  of  complaints  concerning  freight  rates 
and  regulations,  2-i  local  and  3  general  freight 
traffic  committees  were  created,  upon  which  the 
public  had  representation.  Proposed  changes  were 
passed  by  the  local  committee  to  the  general  com- 
mittee and  then  to  the  Director  of  Traffic,  with  a 
copy  to  the  Director  of  Public  Ser\'ice.  Every 
change  had  to  be  approved  by  the  two  Directors, 
or,  if  they  divided  in  opinion,  the  Director  General 
was  called  upon  to  decide.  The  public  representa- 
tives on  these  committees  were  usually  selected  by 
the  shippers'  organizations.  Individually  their 
votes  had  equal  weight  with  the  votes  of  the  indi- 
vidual railroad  members,  but  the  public  members 
were  in  the  minority.*  The  railroad  members, 
therefore,  controlled  the  majority  of  recommenda- 
tion, but  the  minority  influence  was  recognized. 
The  arrangement  did  much  to  maintain  amicable 
relations  between  the  shipping  public  and  the  Rail- 
road Administration  during  the  trying  period  of 
the  war.f 

•In  1919  the  organization  was  changed  so  as  to  give  shippers 
equal  representation  in  number. 

tFor  passenger  rate  matters  three  general  committees  were 
formed,  but  on  these  the  public  was  not  represented. 


AMERICAN  RAILROADS  99 

On  one  important  task,  begun  a  long  time  ago, 
substantial  progress  was  made.  For  years  the 
Interstate  Commerce  Commission  had  been  press- 
ing for  action  which  would  bring  about  uniformity 
in  freight  classifications,  and  the  railroads  had 
been  struggling  with  the  problem.  As  between 
the  Oflficial,  Southern,  and  Western  classifications 
there  had  been  many  variations  in  the  classifica- 
tion of  articles  and  in  the  regulations  which  ap- 
plied to  the  classification.  Under  the  unification 
brought  about  by  federal  control  there  appeared 
to  be  an  excellent  opportunity  to  secure  the  neces- 
sary compromises  between  the  railroads  them- 
selves and  between  shippers  and  railroads.  The 
fact  that  any  plan  of  uniformity  meant  losses  to 
some  of  the  railroads  if  the  lowest  classification  in 
any  territory  were  adopted  uniformly  and,  con- 
versely, meant  higher  freight  charges  to  the 
shippers  if  the  highest  classification  were  adopted, 
had  been  the  principal  stumbling  block  in  the  path 
of  progress.  The  Railroad  Administration  set 
about  with  vigor  to  achieve  the  desired  uni- 
formity, but  nothing  definite  was  accomplished  in 
1918.  In  1919,  however,  under  Mr.  Hines'  regime 
as  Director  General,  a  consolidated  classification 
was  presented  to  the  Interstate  Commerce  Com-^ 
mission;  Mr.  Hines  did  not  care  to  initiate  it 
himself  without  the  prior  approval  of  the  Com- 
mission. Vigorous  opposition  on  the  part  of 
shippers  developed  at  the  hearings,  and  the  Com- 
mission declined  to  approve  the  plan  of  re-classi- 
fication because  it  appeared  to  have  the  effect  of 
unduly  increasing  rates — the  upward  adjust- 
ments  exceeding   those   which   were    downward. 


100  AMERICAN  RAILROADS 

The  Commission,  however,  gave  its  approval  to 
the  unification  of  the  rules.  Though  this  in  itself 
was  an  important  step  forward,  it  is  to  be  re- 
gretted that  the  golden  opportunity  presented  by 
the  war  period  and  federal  control  to  solve  an 
extremely  troublesome  problem  was  lost.  The 
difficulties  which  lie  in  the  path  of  a  complete 
solution  to  the  classification  problem  are  now  as 
great  as  they  were  before  federal  control. 


CHAPTER  XI 

LABOR  POLICIES  DURING  FIRST  YEAR  OF 
FEDERAL  CONTROL 

THE  relations  between  the  railroad  com- 
panies and  their  employees  during  the 
latter  part  of  the  year  1917  were  badly 
strained.  The  scarcity  of  labor  and  the  keen 
competitive  bidding  of  munitions,  shipbuilding 
and  other  plants,  led  to  very  substantial  increases 
in  the  general  scale  of  wages  in  those  industries. 
Railroad  employees  had  received  no  general  in- 
creases in  1917.  Their  leaders  had  made  insistent 
demands  for  substantial  advances.  The  justice  in 
a  demand  for  an  upward  revision  in  the  scale  of 
compensation  was  recognized  by  the  railroad  ex- 
ecutives, but  they  differed  from  the  labor  leaders 
as  to  the  degree  of  increase  warranted  by  the 
abnormal  conditions.  Besides,  the  railroad  execu- 
tives held  to  the  view  that  until  the  Interstate 
Commerce  Commission  had  acted  favorably  upon 
the  pending  applications  for  rate  increases  the 
companies  would  be  financially  unable  to  assume 
the  burden  of  higher  payroll  costs. 

The  argument  of  ' '  inability  to  pay ' '  a  higher 
wage  scale  did  not  appeal  to  railroad  workers. 
They  felt  the  pinch  of  higher  living  costs  and  were 
well  informed  as  to  the  inflated  pay  envelops  of 
workers  in  war  industries.    Just  a  year  previously 

101 


102  AMERICAN   RAILROADS 

they  had  seen  the  President  of  the  United  States 
and  Congress  forced  to  do  the  bidding  of  the  rail- 
road labor  leaders  when  the  Adarason  Act  was 
passed.  Railroad  labor  as  a  class  had  acquired 
a  new  conception  of  their  concerted  power  and 
their  leaders  acted  with  aggressiveness  and  as- 
surance in  their  negotiations  with  the  railroad 
companies. 

Such  was  the  situation  on  the  eve  of  federal 
control  of  railroads.  It  has  already  been  pointed 
out  that  the  acute  labor  situation  was  one  of  the 
reasons  which  justified  the  President  in  taking 
over  the  railroads  for  Government  operation  dur- 
ing the  war  crisis.  A  grave  conflict  between  labor 
and  the  railroads  appeared  to  be  inevitable. 

The  demands  of  the  employees  for  higher  com- 
pensation, which  if  granted  would  have  increased 
the  total  railroad  payroll  expense  by  more  than 
$1,000,000,000  per  year,  received  the  immediate 
attention  of  Director  General  McAdoo.  Assur- 
ances were  given  tlie  labor  leaders  that  the  whole 
subject  would  be  reviewed  sympathetically  and 
that  such  increases  as  w^ere  granted  would  be 
made  retroactive  to  January  1,  1918.  This  had 
a  quieting  effect  upon  the  men  and  acted  as  a 
brake  upon  the  tendency  of  railroad  employees, 
particularly  those  in  the  mechanical  and  main- 
tenances branches  of  the  service,  to  transfer  to 
the  better  paying  positions  in  the  war  industries. 

On  January  18,  1918,  a  Railroad  Wage  Com- 
mission was  appointed  by  the  Director  General. 
This  commission  was  composed  of  Franklin  K. 
Lane,  (chairman)  thou  Secretary  of  the  Interior 


AMERICAN  RAILROADS  108 

and  formerly  a  member  of  the  Interstate  Com- 
merce Commission;  Charles  C.  McChord,  of  the 
Interstate  Commerce  Commission;  William  R. 
Willcox,  formerly  chairman  of  the  Public  Service 
Commission  (First  District)  of  New  York;  and 
J.  Harry  Covington,  Chief  Justice,  Supreme 
Court  of  the  District  of  Columbia.  They  were 
asked  to  "make  a  general  investigation  of  the 
compensation  of  persons  in  railroad  service,  the 
relations  of  railroad  wages  to  wages  in  other  in- 
dustries, the  conditions  respecting  wages  in  dif- 
ferent parts  of  the  country,  the  special  emergency 
respecting  wages  which  exists  at  this  time  owing 
to  war  conditions  and  the  high  cost  of  living,  as 
well  as  the  relation  between  different  classes  of 
railroad  labor."* 

Having  thus  arranged  for  a  thorough  and  un- 
biased study  of  the  whole  question  of  railroad 
wages,  the  Director  General  proceeded  in  other 
ways  to  strengthen  his  relations  with  labor.  On 
February  9,  1918,  a  Division  of  Labor  was  created 
with  W.  S.  Carter  as  director.  To  serve  in  this 
position  ^Ir.  Carter  w^as  granted  leave  of  absence 
by  the  Brotherhood  of  Locomotive  Firemen  and 
Enginemen,  of  which  he  was  president.  The 
sympathetic  viewpoint  of  the  Director  General 
and  of  the  Director  of  Labor  are  clearly  stated  in 
the  introductory  section  of  the  1918  annual  report 
of  the  Division  of  Labor,  from  which  the  follow- 
ing paragraphs  are  quoted  in  full : 

"One  of  the  prhicipal  purposes  of  the  creation  of  the 
Division  of  Labor  was  to  provide  means  whereby  the 
controversies  that  constantly  arise  between  railroad  of- 

*General  Order  5,  January  18,  1918. 


104  AMERICAN  RAILROADS 

ficiala  and  employees  would  be  promptly  and  equitably 
adjusted.  An  inability  to  adjust  these  controversies 
under  past  practises  resulted  in  strikes,  threatened 
strikes,  or  a  constant  unrest  among  employees  to  the  ex- 
tent that  the  efficienc}'  of  the  service  had  greatly  dimin- 
ished at  the  time  that  the  roads  were  taken  over  under 
federal  control. 

"It  is  but  fair  to  say  that  neither  the  operating  of- 
ficials nor  the  employees  were  entirely  to  blame  for  so 
undesirable  a  situation.  While  on  some  roads  there  had 
never  been  a  liberal  policy  toward  employees  of  certain 
classes,  a  study  of  past  relations  will  reveal  the  fact  that 
not  so  many  years  ago  the  labor  policy  of  a  railroad 
was  developed  entirely  by  the  operating  officers.  At 
that  time,  committees  of  employees,  with  the  knowledge 
that  their  immediate  operating  officers  had  the  authority 
to  grant  wage  increases,  revise  wage  agreements,  and  ad- 
just personal  grievances,  entered  into  negotiations  with 
their  respective  officials  with  an  open  mind  and  with  the 
belief  that  if  evidence  and  argument  could  be  presented 
that  would  prove  their  contentions  the  operating  officials 
of  the  roads  would  at  least  grant  some  relief  from  the 
conditions  of  employment  against  which  complaint  was 
made. 

"In  these  days  wage  increases  were  granted  from 
time  to  time,  wage  agreements  were  revised  so  as  to  in- 
clude rules  more  favorable  to  employees,  and  personal 
grievances  arising  out  of  the  administration  of  discipline 
were  disposed  of  usually  without  a  strike  or  a  threat  of 
a  strike. 

"It  is  alleged  by  employees  that  with  the  concentra- 
tion of  financial  control  of  the  railroads,  either  by 
groups  or  districts,  operating  officials  lost  all  authority 
over  the  labor  policies  upon  the  respective  railroads  with 
the  result  that  it  was  alleged  that  the  operating  officials 
of  a  railroad  were  no  longer  permitted  to  exercise  their 
own  judgment  in  disjiosing  of  these  matters. 

"With  the  creation  of  'general  managers  associations' 
covering  a  comparatively'  large  territory  came  'dis- 
trict movements'  by  employees  for  the  adjustment  of 
wage  matters. 


AMERICAN  RAILROADS  105 

"During  the  two  or  three  years  antedating  federal 
control  of  the  railroads  an  alarming  situation  was 
created,  in  that  the  employees'  organizations  as  a  whole 
and  through  federations,  found  themselves  confronted 
with  similar  federations  on  the  part  of  the  railroads, 
the  roads  being  represented  by  conference  committees, 
and  the  conference  committees  being  subordinate  to 
'advisory  committees.'  It  was  alleged  by  employees 
that  these  conference  committees  of  all  of  the  principal 
railroads  in  a  district  were  not  permitted  to  grant  the 
demands  of  employees  or  even  to  make  favorable  com- 
promises without  the  consent  of  the  advisory  committee. 
The  advisory  committee,  it  is  alleged  w'as  the  agent  of 
the  great  banking  institutions  that  control  the  financial 
policy  of  all  the  railroads. 

"Arbitrations  have  been  resorted  to  in  the  latter 
years  in  these  district  movements,  with  the  result  that 
employees  reached  the  conclusion  that  an  arbitration 
award  depended  entirely  upon  the  frame  of  mind  of 
the  neutral  arbitrator.  Persons  selected  to  perform 
this  function  Avere  liberal  in  their  awards  in  accordance 
with  the  liberality  of  their  minds,  when  appointed  upon 
such  arbitration  boards. 

"There  seems  to  have  been  a  public  opinion  that  any 
man,  even  indirectly  connected  with  labor,  would  be 
unqualified  to  act  as  a  neutral  arbitrator,  with  the  re- 
sult that  most  estimable  gentlemen  who  had  never  had 
any  connection  with,  and  who  had  little  knowledge  of, 
labor  conditions  were  called  upon  to  act  as  umpires  in 
these  great  contests.  It  was  alleged  by  the  employees 
that  usually  these  arbitrators,  having  no  technical  knowl- 
edge of  wage  schedules,  often  made  awards  that  were 
difficult  of  interpretation,  if  they  did  not,  in  fact, 
bring  about  conditions  the  very  opposite  to  that  in- 
tended by  the  neutral  arbitrator.  It  also  became  ap- 
parent that  in  the  application  of  the  arbitration  award, 
the  officials  of  a  railroad  were  the  sole  administrators 
thereof,  with  the  result  that  after  employees  had  been 
led  to  believe  that  an  arbitration  award  brought  them 


106  AMERICAN  RAILROADS 

much  relief,  it  was  applied  in  a  manner  that  '  took  away 
from  them  more  than  had  been  given  them.' 

"Later,  provisions  were  made  for  submitting  con- 
troversies over  the  application  of  an  arbitration  award 
back  to  the  arbitration  board,  or  to  some  other  umpire, 
but  this  resulted  in  a  continuation  of  controversies  over 
a  period  of  two  or  throe  years. 

"It  may  be  truthfully  said  that  at  the  time  the  rail- 
roads passed  under  federal  control,  because  of  these 
vexatious  contentions,  the  morale  of  railway  employees 
had  sunk  to  a  low  degree.  In  many  instances  there  was 
an  entire  absence  of  esprit  de  corps,  so  necessary  for 
efficient  operation. 

"It  was  with  the  knowledge  of  this  alarming  situa- 
tion, and  with  a  determination  to  restore  harmonious 
relations  between  employees  and  the  railroads,  and  there- 
by increase  the  efficiency  of  the  railroads,  that  the  Divi- 
sion of  Labor  of  the  Railroad  Administration  was 
created."* 

During  the  first  three  months  of  1918  the  Lane 
Commission  on  Railroad  Wages  held  hearings  at 
which  testimony  was  given  by  representatives  of 
every  class  of  employee,  railroad  officials,  and 
outside  experts.  The  Commission's  report  and 
recommendations,  dated  April  30,  1918,  were  not 
made  public  until  late  in  May.  Then  its  recom- 
mendations, with  few  exceptions,  were  adopted  by 
the  Director  General  and  made  the  basis  for 
General  Order  27,  dated  May  25,  1918,  promulgat- 
ing higher  wages  and  establishing  the  basic 
eight-hour  day. 

•The  purpose  of  tliis  leugthy  quotation  ia  merely  to  show  the 
attitude  of  mind  of  the  Railroad  Administration  on  the  relations 
between  the  companies  and  their  employees.  It  is  not  necessary 
here  to  discuss  the  accuracy  or  the  fairness  of  the  premises.  There 
is,  in  fact,  no  substantial  basis  for  the  allegation  that  a  group  of 
financiers  controlled  labor  policies  to  the  extent  of  tying  the 
hands  of  the  operating  officials.  Nor  is  there  any  logic  in  con- 
demning combinations  of  employers  when  no  more  effective  combi- 
oatiOD  of  labor  than  the  raikoad  brotherhoods  can  be  found. 


AMERICAN  RAILROADS  107 

These  increases  were  based  upon  the  wage  rates 
in  effect  in  December,  1915.  Specific  amounts 
were  to  be  added  for  each  class  of  service  and  for 
each  grade  of  employee.  In  case  the  rate  for  a 
position  had  been  advanced  in  1916  or  1917,  such 
advances  were  to  be  considered  as  a  part  of  the 
1918  advance.  The  Lane  Commission  went  back 
to  1915  as  a  base  because  such  advances  as  were 
made  by  the  companies  in  1916  and  1917  **were 
not  in  any  way  uniform,  either  as  to  employments, 
or  as  to  amounts,  or  as  to  roads,  so  that  one  class 
of  labor  benefited  much  more  than  another  on  the 
same  road,  and  as  between  roads  there  was  the 
greatest  divergence.  The  situation  had  been 
dealt  with  as  pressure  made  necessary,  and  nat- 
urally those  who,  by  organizations  or  through 
force  of  competition,  could  exert  the  most  pres- 
sure fared  the  best."* 

The  Commission  assumed  that  1915  might  be 
regarded  as  a  much  fairer  index  to  the  normal 
relationships  than  either  1916  or  1917,  both  of 
which  had  been  disturbed  by  war  influences. 
Upon  the  1915  base  they  built  a  superstructure  to 
fit  the  changed  economic  conditions  in  1918.  The 
advances  were  greatest  in  degree  for  those  in  the 
lower  grades  of  service  and  the  percentages  of 
increase  tapered  off  as  the  higher  grades  were 
reached,  stopping  entirely  with  positions  paying 
$250  per  month.  Tables  were  provided  to  show 
the  application  of  the  increases  to  monthly,  daily, 
hourly  and  piece-work  rates.  It  is  unnecessary 
here  to  go  into  detail  further  than  to  illustrate 
the  principle  by  giving  a  few  examples  to  show 

"Report  of  the  Lane  Commission. 


108  AMERICAN  RAILROADS 

its  application  to  monthly  rates.  An  employee 
receiving  $45  or  less  in  1915  was  awarded  an  in- 
crease of  $20  or  about  43%  ;  $60  men  received 
$24.60  or  41%  ;  $80  men  received  $32.70  or  40.87%  ; 
$100  men  received  $31.60  or  31.29%;  $150  men 
received  $24.25  or  16.17%^;  $200  men  received 
$16.75  or  8.375%' ;  and  those  who  had  received 
amounts  ranging  from  $240  to  $249  were  awarded 
just  enough  to  bring  the  new  rate  to  $250. 

The  Lane  Commission  was  impressed  by  the 
evidence  tending  to  show  that  a  large  proportion 
of  railroad  workers  were  paid  relatively  low 
wages.  The  following  striking  comment  appears 
in  the  report: 

"It  has  been  a  somewhat  popular  impression  that 
railroad  employees  were  among  the  most  highly  paid 
workers,  but  figures  gathered  from  the  railroads  dis- 
pose of  this  belief.  Fifty-one  per  cent  of  all  employees 
during  December,  1917, — that  is,  more  than  a  million 
employees — received  $75  per  month  or  less,  and  80% 
received  $100  per  month  or  less.  Even  among  the 
locomotive  engineers,  commonly  spoken  of  as  highly 
paid,  a  preponderating  number  received  less  than  $170 
per  month,  and  this  compensation  they  have  obtained 
by  the  most  compact  and  complete  organization,  handled 
with  a  full  appreciation  of  all  strategic  values. 

"Between  the  grades  receiving  from  $150  to  $250 
per  month  there  is  included  less  than  3%  of  all  the 
emplovees  (excluding  officials)  and  these  aggregate  less 
than  60,000  men  out  of  a  grand  total  of  2,000,000. 

"These,  it  is  to  be  noted,  are  not  pre-war  figures. 
They  represent  figures  after  a  year's  war,  and  two 
years  of  rising  prices.  And  each  dollar  now  (April 
30,  1918)  represents  in  its  power  to  purchase  a  place 
in  which  to  live,  food  to  eat,  and  clothes  to  wear,  but 
71  cents  as  against  the  100  cents  of  January  1,  1916." 


AMERICAN  RAILROADS  109 

Among  the  pending  demands  of  the  labor 
leaders  referred  to  the  Lane  Commission  for 
consideration  was  that  of  a  universal  eight-hour 
day*  and  punitive  rates  for  overtime.  On  these 
points  the  Commission  recommended  that  no 
changes  should  be  made — at  least  not  until  a  fur- 
ther exhaustive  study  could  be  made.  The  Com- 
mission feared  that  experiments  with  a  shorter 
working  day  at  that  time  might  lessen  the  tons  of 
freight  hauled  and  the  number  of  passengers 
carried  when  the  urgent  and  serious  necessities 
of  war  compelled  sacrifices  from  all,  and  they 
feared  also  that  the  adoption  of  any  plan  which 
would  prevent  the  Government  from  working  its 
men  as  long  as  they  had  been  in  the  habit  of 
working  under  private  employers  would  be  to 
take  advantage  of  the  grave  war  necessities  of 
the  Government  and  embarrass  it  in  carrying  for- 
ward essential  operation  of  the  war  at  a  time 
when  the  need  of  service  was  never  greater  and 
ability  to  call  in  outside  men  was  seriously  im- 
paired.! 

Notwithstanding  the  Commission's  recommen- 
dations on  this  subject,  Director  General  McAdoo 
was  convinced  in  his  own  mind  that  further  study 
was  unnecessary,  and  he  established  the  eight- 
hour  as  basic  for  all  classified  railroad  workers. 
Not  until  later  (Supplement  4  to  General  Order 

*Tho  Adamson  Act  of  1916  established  the  basic  eight-hour  day 
in  train,  engine  and  yard  services  only. 

tPreamble  to  General  Order  27,  May  27,  1918. 


no  AMERICAN  RAILROADS 

27,  July  25,  1918)  did  he  recognize  also  the  prin- 
ciple of  punitive  rates  for  overtime.  General 
Order  27  provided: 

"The  principle  of  the  basic  eight-hour  day  is  hereby 
recognized.  Where  employees  are  paid  upon  a  daily 
or  monthly  basis  the  new  compensation  herein  estab- 
lished will  apply  to  the  number  of  hours  which  have 
heretofore  constituted  the  actual  day's  work.  For 
example,  where  an  actual  day's  work  has  been  10  hours, 
the  new  compensation  will  cover  the  8  basic  hours  and  2 
hours  overtime.  Additional  overtime  will  be  paid  pro 
rata." 

In  other  words,  an  employee  who  had  received 
$4  per  day  for  10  hours,  was  granted  an  increase 
of  30%  in  the  daily  rate,  or  $5.20  per  day  for  8 
hours,  as  against  $4  per  day  for  10  hours.  If 
under  the  new  rates  and  rules  he  was  obliged  to 
work  10  hours  he  would  receive  $5.20  for  the  first 
8  hours  and  2  hours  overtime  at  the  rate  of  one- 
eighth  of  $5.20  for  each  hour,  making  the  total 
compensation  $6.50.  His  actual  increase,  there- 
fore, was  62.5%  for  the  same  number  of  hours. 
On  a  man-hour  basis  the  general  substitution  of 
the  eight-hour  day  for  the  ten-hour  day  meant  an 
increase  of  25%  in  the  rate  per  hour  and  in  the 
total  payroll  expense  of  the  employees  affected. 

It  was  further  specified  in  General  Order  27 
that  where  women  were  emi)loyed  to  do  the  same 
class  of  work  as  men  they  should  be  paid  the  same 
rate  as  men.  When  the  call  of  military  service, 
and  the  attractions  of  work  in  war  industries, 
began  seriously  to  dei)lete  the  ranks  of  railroad 
workers  in  1917  and  1918,  women  were  employed 
extensively  on  work  tlieretofore  done  almost  ex- 


AMERICAN  RAILROADS  111 

clusively  by  men,  such  as  cleaning  engines,  tend- 
ing crossings  and  doing  certain  grades  of  shop 
and  track  maintenance.  They  were  also  employed 
to  some  extent  as  ticket  sellers.  On  January  1, 
1918,  the  railroads  employed  60,555  women,  most 
of  them  in  clerical  or  semi-clerical  work.  On  Oc- 
tober 1,  1918,  the  total  number  had  increased  to 
101,296.  Prior  to  the  issuance  of  General  Order 
27  women  had  been  paid  rates  slightly  lower  than 
men. 

In  the  South,  where  colored  men  had  been  em- 
ployed extensively  as  firemen  and  trainmen,  they 
had  been  paid  rates  which  were  lower  than  those 
paid  to  white  men  in  those  classes  of  service. 
General  Order  27  required  that  colored  men 
should  receive  standard  rates  of  pay.  It  may  be 
noted,  however,  that  this  provision  was  not  to  be 
interpreted  as  a  recognition  of  social  equality.* 
Essentially  it  was  a  concession  to  the  firemen's 
and  trainmen's  brotherhoods.  Neither  organiza- 
tion admits  colored  men  to  its  membership. 
Naturally  the  brotherhoods  prefer  that  all  fire- 
men and  trainmen  should  be  eligible.  The  em- 
ployment of  negroes  had  the  effect  of  reducing 
the  membership  of  the  unions.  One  of  the  most 
effective  methods  of  eliminating  the  colored  men 
was  to  require  the  railroads  to  pay  the  same  rate 
of  wages  as  white  men.  Without  the  advantage 
of  the  colored  man's  willingness  to  accept  a  lower 
wage  scale,  the  roads  would  not  be  so  anxious  to 

*Nor  was  equal  pay  for  women  a  rwognition  of  equal  ability. 
The  object  was  to  restrain  the  managers  from  continuing  the  em- 
ployment of  women  to  the  exclusion  of  men  when  conditions  be- 
came normal. 


112  AMERICAN   RAILROADS 

retain  them  in  service  when  they  could  employ 
white  men  for  the  same  wages.  While  the  negroes 
ordinarily  are  efficient  as  firemen  or  trainmen 
(particularly  as  firemen)  they  are  not  eligible 
for  promotion  to  the  positions  of  engineer  and 
conductor.  As  a  result  the  railroads  which  em- 
ploy colored  men  as  firemen  or  trainmen  are 
prevented  from  giving  to  the  white  employees  of 
the  two  classes  the  same  relative  training  in  minor 
positions  that  the  northern  roads  can  give  to  fit 
the  younger  men  for  tlic  more  responsible  posi- 
tions of  engineer  and  conductor. 

In  addition  to  the  promulgation  of  new  rates 
of  pay  and  new  rules,  General  Order  27  created  a 
new  tribunal  called  the  Board  of  Kailroad  Wages 
and  Working  Conditions.  The  board  was  com- 
posed of  six  persons,  three  representing  man- 
agement and  three  representing  the  classified 
employees.  The  management  members  consisted 
of  a  general  manager,  a  superintendent  of  motive 
power  and  a  division  engineer.  Each  of  the  three 
employees'  representatives  was  an  executive  of 
a  railroad  labor  union. 

The  duties  of  the  board,  as  defined  by  the  order, 
were  ''to  hear  and  investigate  matters  presented 
by  railroad  employees  and  their  representatives 
affecting  : 

"1.  Inequalities  as  to  wages  and  working  condi- 
tions whether  as  to  individual  employees  or  classes  of 
employees. 

"2.  Conditions  arising  from  competition  with  em- 
ploj'ees  in  other  industries. 


AMERICAN  RAILROADS  113 

"3.  Rules  and  working  conditions  for  the  several 
classes  of  employees,  either  for  the  country  as  a  whole  or 
for  different  parts  of  the  country. 

"The  board  shall  also  hear  and  investigate  other 
matters  affecting  wages  and  conditions  of  employment 
referred  to  it  by  the  Director  General.  The  board  shall 
be  solely  an  advisory  body  and  shall  submit  its  recom- 
mendations to  the  Director  General  for  his  determina- 
tion." 

General  Order  27  had  hardly  been  distributed 
when  it  aroused  a  storm  of  protest  from  those 
who  were  disappointed  in  what  it  gave  them  in 
higher  compensation.  Many  employees  were  dis- 
satisfied because  increases  which  had  come  to. 
them  in  1916  and  1917  were  taken  into  account  and 
deducted  from  the  increases  provided  by  the 
order  for  men  in  similar  occupations  who  had 
not  been  advanced  between  December,  1915,  and 
January  1,  1918.  But  the  greatest  objections 
came  from  the  shop  crafts. 

The  board's  first  hearings  were  devoted  to  the 
complaints  of  the  shop  crafts.  Later  they  heard 
complaints  from  maintenance  of  way  men,  com- 
mon labor,  telegraphers,  signalmen,  and  station- 
men.  As  a  result  of  the  board's  recommendations, 
the  Director  General  issued  a  substantial  nimiber 
of  supplements,  amendments,  addenda  and  inter- 
pretations to  the  original  order.  During  1918  the 
principal  supplements  were: 

Supplement  4,  July  25,  1918,  established  a  uni- 
form classification  and  advanced  the  minimum 
rate  of  the  various  shop  crafts.  For  Class  A 
mechanics,  for  example,  the  original  order  speci- 
fied a  minimum  rate  of  55  cents  per  hour.     The 


114.  AMERICAN   RAILROADS 

men  demanded  85  cents.    Supplement  4  granted 
them  an  increase  of  13  cents  to  68  cents. 

Another  very  important  concession  was  made 
to  the  shop  employees — the  first  of  its  kind  by  the 
Railroad  Administration.  The  principle  of  puni- 
tive rates  for  overtime  was  established.  For  all 
hours  in  excess  of  eight,  and  for  all  hours  on  Sun- 
days and  holidays,  the  men  were  to  be  paid  time- 
and-one-half.  The  classification,  which  defined 
in  detail  the  work  of  each  class  and  grade  of 
employee,  and  the  new  rules  applicable  to  such 
classes,  were  the  basis  for  many  of  the  classifica- 
tions and  rules  which  were  woven  into  the  national 
agreements  executed  in  the  fall  of  1919.* 

Supplement  4  also  sounded  the  death  knell  of 
piecework.  While  higher  rates  were  granted  to 
workers  paid  by  the  hour  no  change  was  made  in 
the  piece-work  rates.  Piece-work  men  were  guar- 
anteed the  new  hourly  minimum  rates,  as  was  the 
case  before  the  supplement  was  issued,  but  as  the 
hourly  rates  had  been  increased  24%  to  29%  by 
the  supplement,  without  a  corresponding  increase 
in  piece-work  rates,  the  piece-work  men  were 
obliged  to  increase  their  production  24%  to  29% 
to  maintain  the  former  relationship  between 
earnings  under  piece-work  and  under  hourly 
rates.  The  natural  effect  was  to  discourage  the 
ambitious  and  cfiBcient  who  profited  in  proportion 
to  their  ability  and  diligence,  and  to  induce  thom 
to  take  the  easy  course  and  be  content  with  the 
hourly  rates.    This  effect  was  desired  by  the  labor 

*The  national  agreements  are  discussed  in  Chapter  XVII  which 
deals  with  the  labor  policies  of  the  second  year  of  federal  control. 


AMERICAN  RAILROADS  115 

leaders  who  strongly  object  to  any  form  of  piece- 
work or  bonus  compensation. 

The  next  important  supplement  was  No.  7, 
dated  September  1,  1918.  It  established  new  and 
higher  rates  for  all  clerical  forces  and  for  certain 
employees  in  station,  storage  or  terminal  ware- 
houses, docks,  storehouses,  shops  and  yards.  It 
also  recognized  the  principle  that  seniority  should 
govern  in  selection  for  promotion  where  ability 
and  merit  are  equal.*  It  allowed  employees  to 
decline  promotion  "without  losing  their  seniority 
rights.  It  required  that  employees  accepting 
promotion  should  be  allowed  30  days  in  which  to 
qualify,  and,  if  failing,  to  be  returned  to  their 
former  positions  without  loss  of  seniority.  It 
specified  that  new  positions  or  vacancies  should 
be  bulletined  5  days  so  as  to  give  eligible  men  an 
opportunity  to  bid,  and  it  required  that  seniority 
rosters  should  be  posted,  kept  up  to  date,  and 
copies  furnished  to  employees'  representatives 
on  request.  It  also  outlined  in  detail  the  pro- 
cedure to  be  followed  bj^  an  employee  exercising 
his  right  to  appeal  from  the  decision  of  his  imme- 
diate superior  or  higher  ofiScer. 

Supplement  8,  of  September  1,  1918,  established 
a  new  and  higher  minimum  basic  wage  for  certain 
employees  in  the  maintenance  of  way  department, 
and  promulgated  rules  similar  to  those  contained 
in  supplement  7. 

Supplement  10,  dated  November  16,  1918, 
granted  additional  increases  to  telegraphers, 
signalmen  and  other  like  employees,  and  pre- 
scribed rules  like  those  in  supplement  7. 

*Thia  principle  had  already  been  widely  recognized  in  train 
service  and  to  a  smaller  extent  in  other  services. 


116  AMERICAN   RAILROADS 

Supi)lein('iit  11,  of  November  23,  1918,  author- 
ized additional  increases  in  the  wages  of  station 
agents  and  promulgated  the  rules  referred  to  in 
the  discussion  of  supplement  7. 

Supplement  13,  issued  under  date  of  December 
28,  1918,  superseded  Supplements  10  and  11,  and 
granted  further  increases  to  telegraphers,  signal- 
men and  station  agents. 

In  its  report  for  1918,  reviewing  the  increases 
recommended  to  and  approved  by  the  Director 
General,  the  board  said: 

"While  very  substantial  increases  in  wages  and 
greatly  improved  working  eonditions  have  been  granted 
by  recent  wjige  orders,  they  have  generally  been  less 
than  men  j)erforming  similar  service  for  industrial  con- 
cerns engaged  in  war  work  are  receiving,  which  dif- 
ferentials are  considered  warranted  on  account  of  the 
permanency  of  employment  on  railroads,  while  the  em- 
ployinoiit  in  otluT  fiovei'nmeiit  activities  was  brought 
about  by  war  conditions,  and  is  more  or  less  transitoiy. 
The  object  has  been  kept  constantly  in  mind  of  cre- 
ating a  wage  structure  which  in  its  essentials  would  sur- 
vive the  war  period." 

Prior  to  the  creation  of  the  Board  of  Railway 
Wages  and  Working  Conditions  with  advisory 
functions  in  the  field  of  railway  wages  and  work- 
ing rules,  there  had  existed  a  similar  board  with 
jurisdiction  in  controversies  growing  out  of  the 
interpretation  or  application  of  the  provisions  of 
the  then  existing  wage  agreements.  That  body 
was  known  as  Board  of  Adjustment  No.  1.  It 
was  established  by  General  Order  13  of  March 
22,  1918.  In  etTect  it  continued  an  existing  body, 
identical  in  functions  and  in  personnel,  which  had 


AMERICAN  RAILROADS  117 

been  established  by  the  railroads  companies  in 
March,  1917,  before  the  United  States  entered  the 
war.  The  continuation  of  that  body  (kno-wn  as 
the  Commission  of  Eight)  was  the  result  of  an 
agreement  between  the  regional  directors  and  the 
presidents  of  the  four  train-service  brotherhoods 
— enginemen,  conductors,  firemen  and  trainmen. 
The  Board  of  Adjustment,  like  the  Board  of  Rail- 
w^ay  Wages  and  Working  Conditions,  was  bi-par- 
tisan. It  consisted  of  four  management  repre- 
sentatives and  an  equal  number  of  brotherhood 
officials.  Their  salaries  were  borne  jointly  by 
the  Railroad  Administration  and  the  labor  unions, 
but  all  other  expenses  were  assumed  by  the  Ad- 
ministration. The  functions  and  jurisdiction  of 
the  adjustment  board,  as  defined  in  the  agree- 
ment, may  be  indicated  by  the  following  extracts 
(articles  6  to  10,  inclusive) : 

"All  authority  vested  in  the  Commission  of  Eight,  to 
adjust  disputes  arising  out  of  the  application  of  the 
eight-hour  law,  is  hereby  transferred  to  the  Railway 
Board  of  Adjustment  No.  1,  in  the  same  manner  as  has 
heretofore  been  done  by  the  Commission  of  Eight.  All 
decisions  of  a  general  character  heretofore  made  by  the 
Commission  of  Eight  are  hereby  confirmed,  and  shall 
apply  to  all  roads  under  governmental  operation,  un- 
less exempted  in  said  eight-hour  law.  Decisions  which 
have  been  rendered  by  the  Commission  of  Eight,  and 
which  apply  to  individual  railroads,  shall  remain  in 
effect  until  superseded  by  decisions  of  the  Railway  Board 
of  Adjustment  No.  1  made  in  accordance  with  this  un- 
derstanding. 

"The  Railway  Board  of  Adjustment  No.  1  shall 
render  decisions  on  all  matters  in  dispute  as  provided 
in  the  preamble  hereof  (i.  e.,  all  controversies  growing 
out  of   the   interpretation   or   application   of   the  wage 


118  AMERICAN   RAILROADS 

schedule  or  a{;reemeiits  which  are  not  promptly  ad- 
justed bj'  the  officials  and  the  emploj'ees  on  any  one  of 
the  railroads  operated  by  the  Government)  and  when 
properly  submitted  to  the  board. 

"The  broad  question  of  wap:es  and  hours  will  be  con- 
sidered by  the  Railroad  AVap:e  Commission,*  but  matters 
of  controversies  arisinj?  from  interpretations  of  wage 
agreements,  not  including  matters  passed  upon  by  the 
Railroad  Wage  Commission,  shall  be  decided  by  the 
Railway  Board  of  Adjustment  No.  1,  when  properlj- 
presented  to  it. 

"Wages  and  hours,  when  fixed  by  the  Director  Gen- 
eral, shall  be  incorporated  into  existing  agreements  on 
the  several  railroads,  and  should  differences  arise  be- 
tween the  management  and  the  employees  of  any  of  the 
railroads  as  to  such  incorporation,  such  questions  of  dif- 
ference shall  be  decided  by  the  Railway  Board  of  Ad- 
justment No.  1,  when  properly  presented,  subject  al- 
ways to  review  by  the  Director  General. 

"Personal  grievances  or  controversies  arising  under 
interpretations  of  wage  agreements,  and  all  other  dis- 
putes arising  between  otlficials  of  a  railroad  and  its  em- 
ployees, will  be  handled  in  their  usual  manner  by  gen- 
eral committees  of  the  employees  up  to  and  including 
the  chief  operating  olficer  of  the  railroad  (or  some  one 
officially  designated  by  him),  when,  if  an  agreement  is 
not  reached,  the  chairman  of  the  general  committee  of 
emplnvees  may  refer  the  matter  to  the  chief  executive 
officer  of  the  organization  concerned,  and  if  the  conten- 
tion of  the  employees'  committee  is  approved  by  such 
executive  officer,  then  the  chief  operating  officer  of  the 
road  and  the  chief  executive  officer  of  the  organization 
concerned  shall  refer  the  matter,  with  all  supporting 

*Thi8  refers  to  the  Lane  CommiBsion  which  went  out  of  ex- 
istence when  its  report  of  April  30,  1918,  was  made  to  the  Di- 
rector General.  Its  functions  were  transferred  to  the  Board  of 
Railway  Wages  and  Working  Conditions  created  by  General 
Order  27,  May  25,  1918. 


AMERICAN  RAILROADS  119 

papers,  to  the  Director  of  the  Division  ot  Labor  of  the 
United  States  Railroad  Administration,  who  will  in 
turn  present  the  case  to  the  Railway  Board  of  Adjust- 
ment No.  1,  which  board  shall  promptly  hear  and  de- 
cide the  case,  giving  due  notice  to  the  chief  operating 
officer  of  the  railroad  interested  and  to  the  chief  execu- 
tive officer  of  the  organization  concerned  of  the  time 
set  for  hearing." 

As  has  already  been  mentioned,  Board  of  Ad- 
justment No.  1  had  its  jurisdiction  confined 
exclusively  to  train  and  engine  service.  Subse- 
quently two  additional  boards  of  adjustment  were 
established.  Board  No.  2  was  appointed  by  Gen- 
eral Order  29,  May  31,  1918,  with  jurisdiction  over 
disputes  affecting  the  shop  crafts.  Board  No.  3 
was  created  by  General  Order  53,  November  13, 
1918,  with  jurisdiction  in  matters  affecting  tele- 
graphers, agents,  switchmen,  clerks  and  main- 
tenance of  way  employees.  All  of  the  adjustment 
boards  were  the  result  of  agreements  between  the 
regional  directors  and  the  chief  executive  officers 
of  the  labor  organizations.  The  functions  and 
procedure  of  Boards  Nos.  2  and  3  were  similar  in 
principle  to  those  already  quoted  from  the  order 
establishing  Board  No.  1. 

A  very  large  majority  of  all  employees  were 
members  of  the  unions  signatory  to  the  agree- 
ments under  which  the  three  boards  of  adjust- 
ment were  established.  There  remained,  however, 
a  substantial  number  of  employees  who  were 
affiliated  with  smaller  unions  or  who  belonged  to 
no  union.  "For  the  purpose  of  providing  prompt 
and  proper  methods  of  adjusting  controversies 
affecting  these  employees  an  assistant  director 


120  AMERICAN  RAILROADS 

of  the  Division  of  Labor  was  appointed  whose 
special  duty  was  to  investigate  all  complaints, 
endeavor  to  bring  about  amicable  adjustments, 
and  practically  perform  for  these  employees  the 
work  accomplished  by  the  Railway  Boards  of 
Adjustment."* 

The  following  statistics,  taken  from  the  1918 
annual  report  of  the  Division  of  Labor,  give  an 
indication  of  the  extent  to  which  the  first  board 
was  called  upon  to  exercise  its  functions  during 
the  first  8  months  of  its  active  existence  under 
federal  control : 

Status  of  Docket  of  Railway  Board  of  Adjustment  No.  1 
As  of  November  30,  1918 

Cases  entered  upon  docket  under  General  Order  13 408 

Cases  in  which  decisions  have  been  rendered, 292 

Cases  disposed  of  locally, 7 

Cases  withdrawn  at  hearings, 9 

Cases  outside  jurisdiction  of  board, 2 

Total  cases  disposed  of 307 

Cases  on  docket  November  30  not  yet  disposed  of, 101 

Cases  set  for  hearings,  December  session, 51 

Cases  now  ready  for  action  of  board, 2 

Cases  held  up  or  requiring  additional  data, 16 

Cases  on  docket  under  General  Order  27, 23 

Cases  in  which  recommendations  have  been  made, 2 

Cases  held  to  determine  jurisdiction, 21 

The  record  shows  that  Board  No.  2,  between 
July  2  and  November  30,  1918,  considered  147  con- 
troversies and  made  128  decisions.  Board  No.  3 
did  not  begin  to  function  until  the  close  of  the  year 
1918. 

As  a  result  of  the  activities  of  the  several  boards 
and  of  the  Division  of  Labor,  no  labor  distur- 
bances marred  the  operating  record  of  1918,  and 

•Annual  report  of  Division  of  Labor,  1918. 


AMERICAN  RAILROADS  121 

the  general  morale  of  the  service  was  good.  This 
desirable  state  of  affairs,  however,  was  partly 
the  reflex  of  patriotic  impulse  to  make  the  rail- 
roads an  effective  war-winning  arm  of  the 
Government,  and  a  satisfactor}'  response  to  Mr. 
McAdoo's  appeals  to  forget  dissentions  and  dis- 
appointments, and  to  remember  that  as  railroad 
men  they  were  not  only  serving  their  country,  but 
that  upon  the  character,  quality,  and  loyalty  of 
that  service  depended  in  a  large  measure  the  suc- 
cess of  America's  effort  in  the  war.* 

In  concluding  this  discussion  of  labor  relations 
in  1918  it  is  of  interest  to  note  that  the  wage  in- 
creases and  changes  in  working  rules  meant  large 
additions  to  payroll  expense,  both  in  higher  earn- 
ings per  employee  and  in  a  larger  number  of  em- 
ployees. The  average  number  of  employees  on 
Class  1  railroads  during  the  entire  year  1917  was 
1,732,876.  The  comparable  average  for  the  entire 
year  1918  was  1,841,575.  The  increase  was  108,- 
699  or  6.3%.  A  comparison  of  the  number  of 
employees  at  the  beginning  of  federal  control  and 
on  January  15,  1919,  shows  a  somewhat  greater 
difference.  On  December  15,  1917,  the  number 
was  1,703,684;  on  January  15,  1919,  the  compar- 
able number  was  1,843,530,  an  increase  of  139,846 
or  8.2%.  This  increase  in  number  was  caused 
mainly  by  the  adoption  of  the  eight  hour  day  in 
all  classes  of  service. 

The  total  payroll  expense  of  Class  1  railroads 
in  1917  was  $1,739,482,142;  in  1918  the  compar- 
able total  was  $2,613,813,351,  an  increase  of  $874,- 

•Preamble   to   General   Order   27,  May  25,   1918. 


122  AMERICAN  RAILROADS 

33J,209,  or  over  50%.  These  figures,  however, 
do  not  tell  the  entire  story,  as  a  large  part  of  the 
1918  increases  and  changes  in  rules  were  not  in 
effect  throughout  the  entire  year. 

Mr.  McAdoo  stated  that  the  increases  granted 
in  1918  were  at  the  annual  rate  of  $600,000,000 
to  $700,000,000.  It  is  now  certain,  however,  that 
even  the  higher  figure  underestimates  the  actual 
extent  of  the  1918  increases.  It  is  evident  that 
the  Director  General  was  not  then  fully  informed 
as  to  the  effect  of  the  various  collateral  increases 
and  changes  in  rules.* 

It  should  be  noted  here  that  in  1919  Director 
General  Hines  found  it  necessary  to  authorize 
further  wage  advances  and  to  promulgate  addi- 
tional rules  which  added  to  the  railroads  labor 
cost,  and  that  in  1920,  the  United  States  Labor 
Board,  created  by  the  Transportation  Act  of  that 
year,  found  justification  for  a  further  general  ad- 
vance of  over  $600,000,000  per  year.  The  in- 
creases granted  to  railroad  labor  in  1918  were 
probably  less  in  percentage  than  those  given  to 
employees  in  other  industries  with  which  the  rail- 
roads had  to  compete  during  an  acute  shortage  of 
labor. 

The  further  developments  in  the  labor  situa- 
tion, and  the  policies  of  the  Railroad  Administra- 
tion during  the  last  14  months  of  federal  control 
are  discussed  in  Chapter  XVII. 


•See  Chapter  XVII  for  recapitulatiou  of  all  wage  increaseg  dur^ 
ing  federal  control. 


CHAPTER  XII 

OPERATING  RESULTS  OF  1918 

AS  the  railroads  were  commandeered  by  the 
Government  to  meet  a  war  emergency,  a 
'  review  of  their  traffic  accomplishments  dur- 
ing the  year  1918  is  of  particular  interest.  It  vAW 
be  recalled  that  the  railroads  serving  the  North 
Atlantic  seaboard  were  badly  congested  when  the 
Government  took  hold.  At  that  time  there  were 
62,247  loaded  cars  delayed  short  of  their  ultimate 
destination.  In  addition,  there  were  31,421  cars 
held  at  and  west  of  St.  Louis;  24,836  at  or  west 
of  Chicago;  14,061  at  or  south  of  the  Ohio  River 
gateways ;  and  15,545  at  or  south  of  the  Potomac 
River  gateways.  These  made  a  total  of  148,110 
loaded  cars  held  short  of  destination.  In  the  ma- 
jority of  cases  they  were  destined  to  the  rela- 
tively small  area  embraced  within  a  line  drawn 
from  Portland,  Maine,  through  Albany,  Roches- 
ter, Harrisburg,  and  Baltimore. 

The  operating  methods  employed  to  relieve  this 
congestion  have  already  been  described.  These 
methods,  in  spite  of  the  unusually  severe  weather 
of  January,  resulted  in  the  practical  clearing  of 
the  accumulations  by  May  1. 

During  this  period  the  food  situation  in  the 
countries  with  which  the  United  States  was  asso- 
ciated in  the  war  was  exceedingly  acute.     The 

123 


124  AMERICAN   RAILROADS 

needs  were  ( stimated  by  the  Food  Administrator 
to  be  not  less  than  1,160,000  tons  per  month. 
Translated  into  other  terms  that  meant  between 
30,000  and  40,000  loaded  cars  per  month  to  be 
moved  to  the  seaboard  and  the  same  number  of 
empties  to  be  moved  westward.  The  actual  ex- 
ports during  the  months  of  January,  and  the  esti- 
mated exports  for  February,  fell  far  short  of  the 
minimum  requirements,  and  a  forecast  of  the  sit- 
uation in  March  was  even  less  encouraging.  Vig- 
orous steps  were  taken  by  the  Railroad  Adminis- 
tration to  give  preference  to  the  transportation 
of  foodstuifs,  so  that  by  March  15  the  vessel 
capacity  of  the  Allies  was  satisfied  and  there  was 
a  surplus  awaiting  boats. 

The  situation  was  graphically  described  by  Carl 
R.  Gray,  former  director  of  operation,  in  an  in- 
formal address  before  the  St.  Louis  Railroad 
Club,  May  0,  1919.    He  stated : 

"On  the  iiitilit  of  February  8,  the  Director  General 
told  me  that  a  committee  from  the  Council  of  National 
Defense  had  asked  to  see  him  at  9  o'clock  the  next 
morninj]^,  but  that  he  had  to  go  to  the  capital,  so  he 
asked  them  to  see  me.  At  9  o'clock  two  cabinet  min- 
isters, the  chairman  of  the  Shipping  Board,  the  Food 
Administrator,  and  the  Fuel  Administrator  came  in. 
They  had  cablegrams  from  three  premiers — of  Great 
Britain,  of  France,  and  of  Italy — to  their  respective 
ambassadors,  and  these  cablegrams  sounded  almost  as 
though  they  were  written  by  the  same  person.  I  remem- 
ber that  in  each  instance  they  said  that  unless  the  food 
program  promised  by  Mr.  Hoover  was  not  only  main- 
tained but  the  deficiency  made  up,  that  the  war  would 
be  over  by  the  first  of  April.  I  asked  Mr.  Hoover 
what  he  had  promised  and  he  said  1,160,000  tons  a 
month,    commencing   with   January    1.      I    asked   him, 


AMERICAN  RAILROADS  125 

'  How  much  have  you  furnished  ? '  He  said,  '  In  January 
750,000  tons;  February  is  one-third  gone  and  we  are 
going  at  the  rate  of  500,000  tons,  so  unless  the  situa- 
tion is  remedied  we  will  reach  the  first  day  of  March 
over  1,000,000  tons  short.  There  is  just  one  month 
between  that  time  and  the  time  these  gentlemen  have 
given  as  the  ultimate  date.'     **** 

''I  could  see  the  war  lost  and  the  responsibility  rest- 
ing entirely  upon  the  railroads.  My  fear  was  that  the 
Director  General  might  hesitate  to  put  into  effect  the 
drastic  regulations  which  I  knew  were  necessary.  The 
message  from  the  French  Premier  said  that  the  French 
rations  had  been  reduced  to  the  armies  in  the  field ;  the 
Italian  message  said  that  the  rations  had  twice  been 
reduced  and  could  not  be  reduced  again. 

"Mr.  McAdoo  approved  the  action  that  was  recom- 
mended and  that  night  an  order  was  sent  out  which 
absolutely  forbade  the  loading  of  box  cars,  except  at 
freight  houses,  with  anything  except  food.  That  order 
remained  in  effect,  the  only  exception  being  on  account 
of  the  War  Department,  until  about  March  1.  Then 
it  was  relaxed  somewhat.  On  March  15  we  had  every 
elevator  on  the  Atlantic  coast  filled  with  grain,  and  we 
had  6,615  cars  of  other  food  up  against  the  seaboard ! 

"I  don't  believe  I  ever  dictated  a  letter  in  which 
I  took  so  much  genuine  satisfaction  as  I  did  the  letter, 
which  I  dictated  for  Mr.  McAdoo 's  signature,  to  the 
three  ambassadors,  in  which  I  called  attention  to  their 
former  call  and  to  the  representations  made  at  that 
time,  and  called  their  attention  to  the  6,615  cars  up 
against  the  water  front." 

A  serious  situation  existed  also  with  respect  to 
bituminous  coal.  At  the  beginning  of  federal 
control  there  was  an  actual  shortage  of  cars  at 
the  mines ;  there  was  a  lack  of  systematic  distribu- 
tion; and  there  was  a  serious  dislocation  of  the 
New  England  supply  because  of  the  withdrawal 
of  the  coastwise  water  service.    The  coal-carrying 


126  AMERICAN  RAILROADS 

water  equipment  had  been  commandeered  by  the 
navy  and  the  already  overburdened  rail  lines  to 
and  in  New  England  were  called  upon  to  handle 
something  more  than  150%  of  their  normal  coal 
tonnage.  An  acute  situation  existed  also  in  the 
northwest.  Through  methods  which  would  have 
been  difficult  to  apply  except  under  unified  gov- 
ernmental control  the  Railroad  and  the  Fuel  Ad- 
ministrations together  worked  out  a  plan  which 
gave  the  needed  relief.  The  coal  production  in 
February  of  1918  exceeded  the  tonnage  of  Febru- 
ary, 1917,  and  thereafter  during  the  year  1918  the 
coal  situation  was  well  in  hand. 

The  greatest  factor  toward  improving  the  situa- 
tion was  the  zoning  of  distribution.  Each  of  the 
producing  districts  was  assigned  a  certain  fixed 
area  within  which  to  market  its  coal.  Shipments 
outside  of  that  area  were  not  allowed  except  un- 
der a  permit  from  the  Fuel  Administration.  The 
plan  eliminated  a  waste  of  transportation  by  pro- 
hibiting unduly  long  hauls  to  destinations  which 
could  be  served  by  nearer  producing  districts. 
The  cross -hauling  which  had  prevailed  to  a  con- 
siderable degree  theretofore  was  eliminated,  and 
coal-carrying  equipment  was  more  efficiently  util- 
ized. The  zoning  plan  furnished  also  an  incentive 
for  utilizing  coal  available  in  the  plains  states, 
which  otherwise  would  not  have  been  produced  in 
competition  mth  the  higher  grades  of  other  dis- 
tricts.* 

*  The  zoning  plan  brought  substantial  savings  in  transporta- 
tion; but  it  was  not  without  disadvantage  to  coal  users.  It  made 
necessary  many  adjustments  in  markets  that  were  accustomed 
to  a  particular  grade  of  coal. 


AMERICAN  RAILROADS  127 

Of  all  of  the  governmental  demands,  the  move- 
ment of  troops  was  naturally  given  the  greatest 
attention.  The  Railroads'  War  Board,  as  has 
already  been  stated,  was  praised  by  the  Secretary 
of  AVar  for  the  effective  and  satisfactory  manner 
in  which  the  railroads  had  responded  to  the  heavy 
calls  upon  them  for  transportation  of  troops.  The 
Railroad  Administration  took  over  intact  the  or- 
ganization which  had  been  handling  that  jjhase  of 
operation  for  the  Railroads'  AVar  Board  and  made 
it  the  Troop  Movements  Section.* 

Between  January  1, 1918  and  December  31, 1918 
the  railroads  moved  7,395,310  soldiers,  sailors, 
and  marines,  an  average  of  616,276  per  month. 
The  maximum  movement  was  in  July,  when 
1,147,013  troops  were  moved.  These  figures  do 
not  include  the  large  number  of  officers  and  men 
who  traveled  at  their  own  expense  while  on  fur- 
lough and  to  whom  the  Railroad  Administration 
granted  a  rate  of  1  cent  per  mile. 

This  troop  movement  in  1918  required  the  run- 
ning of  13,912  special  trains,  with  an  average 
train  journey  of  over  800  miles.  The  average 
train  consisted  of  12.2  ears  and  carried  443  men 
with  their  equipment  and  supplies.  The  speed 
of  the  special  troop  trains  was  limited  to  20 
miles  per  hour  in  the  interest  of  safety.  Consid- 
ering the  magnitude  of  the  movement  and  the 
fact  that  these  were  extra  trains  for  which  special 
arrangement  had  to  be  made,  the  record  shows  a 

*George  Hodges,  who  had  charge  of  the  organization  before 
and  after  federal  control,  and  who  died  suddenly  in  the  spring 
of  1919,  was  awarded  posthumously  the  Distinguished  Service 
Medal  as  a  recognition  of  the  very  successful  results  which 
followed  the  coordination  of  this  important  work. 


128  AMERICAN  RAILROADS 

commendable  freedom  from  accident.  Out  of  the 
nearly  14,000  trains  16  met  with  accidents  which 
caused  the  death  of  36  men  and  injury  to  314. 

There  are  no  complete  data  to  show  the  extent 
of  freight  traffic  for  Government  purposes  sep- 
arate from  that  of  other  purposes.  We  must  be 
content  to  view  the  freight  service  as  a  whole. 

It  might  be  thought  that  a  comparison  of  the 
ton-miles  produced  in  1918  \\dth  those  produced 
in  1917  would  give  a  satisfactory  answer  to  the 
question:  AYas  the  Director  General  able  to  oper- 
ate the  railroads  as  efficiently  in  1918  as  they 
were  operated  during  the  last  year  of  private 
operation?  The  ton-miles  of  1917  were  the  great- 
est then  on  record  and  the  volume  of  traffic  dur- 
ing the  last  three  months  was  so  great  as  to  cause 
serious  congestion  and  inability  to  operate  effi- 
ciently mth  the  overload.  If,  therefore,  the  Di- 
rector General  could  produce  as  many  or  more 
ton-miles,  and  at  the  same  time  could  move  the 
freight  wdth  less  congestion  and  less  delay,  it 
would  seem  that  federal  operation  in  the  emer- 
gency was  justified  by  the  results. 

On  further  thought,  however,  it  mil  appear 
that  the  volume  of  ton-miles  does  not  furnish  the 
complete  answer.  Is  it  not  conceivable  that  the 
Railroad  Administration  might  have  been  suc- 
cessful even  if  the  total  production  in  ton-miles 
was  less?  Whether  it  produced  as  many  ton-miles 
as  were  produced  under  private  operation  is  one 
test;  but  the  real  test  is  this— did  it  produce  in 
requisite  volume  the  particular  kind  of  ton-miles 
that  were  essential  to  the  war? 


AMERICAN  RAILROADS 


129 


An  examination  of  the  records  of  performance 
indicates  clearly  that  the  Railroad  Admimstration 
met  both  tests?  The  ton-miles  of  1918  exceeded 
those  of  1917  and  all  previous  years,  and  the 
particular  kind  of  traffic  which  was  es^ej*^!  ^^^ 
war  purposes  was  satisfactorily  transpoited.  ihe 
volume  of  tonnage  for  non-miUtary  purposes  ^v^s 
reduced  to  save  the  facilities  for  essential  ton- 
nage; but  in  the  aggregate  the  performance  of 
1<)18  massed  all  previous  records. 

The  foll^^ving  summary  of  results  is  taken  from 
the  report  of  the  Operating  Statistics  Section. 
The  figures  do  not  agree  exactly  with  those  of  the 
Interstate  Commerce  Commission  as  the  latter 
include  returns  from  a  few  Class  1  roads  which 
were  not  retained  by  the  Government. 

Freight  Traffic  Movement  and  Car  Pehformance  • 
Class  1  Eailroads.     Calendar  Years  1918  and  1917 


Average  miles  of  road ^     ' 

Ton-miles     (millions)    ....••■        fff 

Freight  train-miles  (thousands) ....        bS',^-^^ 
Loaded  freight  car-miles   (millions)  14,928 

Empty  freight  car-miles         ^^  ' 

Total  freight   car-miles  o  29l'797 

Cars  on  line  daily,  serviceable i'f'''l' 

Cars  on  line  daily,  total 1  2,430,780 

Averages 

Ton-miles  per  train-mile..... 

Ton-miles  per  loaded  car-mile 

Per  cent  loaded  to  total  car-miles 

Car-miles   per    car-day 

Ton-miles   per   car-day 

=?^^^5^t^rd3^?^I^     Ton-miles    ^f^-'^T^- 
aon-revenue    tons.      The    statistics    include    th 
mixed   trains. 


228,633 

427,342 

654,580 

15,816 

6,717 

22,533 

2,230,057 

2,363,309 


1.8 
DS.5 
D5.6 

6.1 
D2.1 

2.8 

2.9 


both    revenue    and 
e    performance    of 


130  AMERICAN  RAILROADS 

It  will  be  noted  that  the  increase  of  1.8%  in 
ton-miles  was  accomplished  A\ith  less  train-miles 
and  vnih  less  car-miles.  Train-miles  show  a  de- 
crease of  2.5%,  and  car-miles  show  a  decrease  of 
2.1%.  The  average  train  load  and  the  average 
car  load  show  substantial  gains — 4.4%  increase 
in  the  train  load  and  7.8%  increase  in  the  car 
load.  Two  items  in  the  tabulation  show  losses  in 
efficiency:  the  percentage  of  loaded  to  total  car- 
miles  and  the  average  miles  per  car-day  were  less 
than  in  1917. 

The  increases  in  the  train  load  and  in  the  car 
load  are  explained  in  part  by  the  larger  propor- 
tion of  freight  which  moves  in  large  carload  lots, 
such  as  coal,  ore,  iron  and  steel  products,  grain, 
and  similar  commodities,  and  the  smaller  propor- 
tion of  merchandise  and  other  commodities  which 
move  in  relatively  light  car  loads.  Freight  traffic 
was  divided  roughly  into  two  classes — essential 
and  non-essential.  The  former  was  given  prefer- 
ence. The  essential  freight  included  the  heavy 
commodities  which  assist  in  making  a  favorable 
record  in  car  and  train  loading. 

With  respect  to  the  larger  proportion  of  empty 
car-miles  and  the  loss  in  car-miles  per  car-day, 
the  decreases  in  efficiency  are  partly  explained  by 
the  policy  of  arbitrarily  moving  the  empties  in 
solid  train  lots  and  of  attempting  to  have  the 
empties  available  at  originating  points  in  advance 
of  the  needs.  The  increase  in  the  car  load,  also, 
was  purchased  at  some  sacrifice  in  car  movement 
per  day  when  cars  were  held  for  the  heavier  load. 

The  ultimate  index  to  the  efficiency  of  freight 
car  utilization  is  *' ton-miles  per  car-day."    This 


AMERICAN  RAILROADS  131 

is  the  resultant  of  the  car  load,  the  per  cent  of 
loaded  car-miles,  and  the  car-miles  per  car-day. 
It  will  be  noted  that  the  gain  of  7.8%  in  the  load 
was  not  sufficient  to  offset  the  losses  of  3.6%  in 
loaded  proportion  and  4.6%  in  car-miles  per  day. 
The  net  loss  in  ton-miles  per  car-day  was  1.0%. 

In  passenger  service  as  in  freight  service,  the 
performance  in  1918  broke  all  previous  records. 
Including  the  movement  of  troops,  the  passengers 
carried  one  mile  in  that  year  were  42,498,248,256, 
compared  mth  39,361,369,062  in  1917.  The  greater 
part  of  the  8%  increase  is  accounted  for  by  mili- 
tary traffic,  but  there  was  a  slight  increase  in 
civilian  passenger  traffic,  notwithstanding  the 
curtailment  in  passenger  train  service  and  the 
appeals  of  the  Railroad  Administration  to  the 
public  to  '^stay  at  home." 

The  net  operating  income  of  the  railroads  un- 
der federal  control  for  the  year  1918  fell  short 
by  approximately  $245,000,000  of  the  amount 
which  the  Government  paid  in  the  standard  re- 
turn rentals.  This  deficit  includes  losses  in  the 
operation  of  the  Pullman  car  lines,  refrigerator 
car  lines,  steamship  lines,  and  inland  waterways, 
as  well  as  the  expenses  of  the  central  and  regional 
offices  of  the  Railroad  Administration.  It  does 
not  include  interest  on  expenditures  for  additions 
and  betterments  made  by  the  Railroad  Adminis- 
tration but  paid  for  by  the  companies,  nor  is 
account  taken  of  claims  for  undermaintenance. 
The  discussion  of  these  auxiliary  features  will 
be  reserved  for  a  later  chapter  in  which  the  com- 
plete results  of  the  federal  control  period  \n\\  be 
reviewed. 


132 


AMERICAN  RAILROADS 


A  complete  and  exact  statement  of  the  financial 
results  for  1918  is  not  available  in  separate  form, 
but  summaries  of  the  income  account  were  pub- 
lished monthly  by  the  Operating  Statistics  Sec- 
tion. They  apply  only  to  Class  1  roads  and  do 
not  include  any  of  the  auxiliary  services,  such 
as  Pullman  lines  and  steamboats ;  nor  do  they  in- 
clude the  expense  of  the  regional  and  central 
offices  of  the  Administration.  The  figures,  how- 
ever, give  a  sufficient  indication  of  the  relation 
between  the  aggregate  net  operating  income  of 
Class  1  railroads  and  the  rentals  which  were  paid 
by  the  Government.  The  difference  between  the 
two  amounts  represents  much  the  greater  part  of 
the  deficit  under  federal  control. 

Condensed   Income   Account  * 
Class  1  Eailroads  in  Federal  Control.     Years  1918  and  1917 


Increase 

or 

Decrease 

Item 

Amount 

Per 
Cent 

Operating    revenues.. 

$4,842,695,884 

$3,988,827,671 

853,868,213 

21.4 

Operating    expenses.  . 

3,939,315,122 

2,808.544,956 

1,130,770,166 

40.3 

Net  operating  revenue 

903,380,762 

1,180,282,715 

D276,901,953 

D23.5 

Net    railway  operating 

688,200,083 
890,335,685 

960,492,111 

D272,292,028 

D28.3 

Standard    return    .... 

Per   cent   net  railway 

' 

operating  Income  to 

standard    return  .  .  . 

77.3 

Deflclt 

202.135.602 

*  D  denotes  decrease.  These  returns  include  the  results  of  oper- 
ation of  150  Class  1  railroads  with  an  aggregate  road  mileage  of 
230,769.  Net  railway  operating  income  as  used  here  corresponds 
with  its  definition  in  the  Federal  Control  Act,  viz.,  net  operating 
revenue,  minus  railway  tax  accruals  and  uncollectible  railway 
revenues,  plus  or  minus  the  net  balances  for  equipment  rents, 
joint  facility  rents,  and  miscellaneous  federal  income  items 
(if  any).  The  standard  return  given  here  is  the  figure  as  it 
appeared  at  that  time.  Since  then  it  has  been  changed  slightly 
by  adjustments. 


AMERICAN  RAILROADS  133 

The  deficit  was  due  to  an  increase  in  operating 
expenses  which  was  relatively  and  absolutely- 
much  more  than  the  increase  in  operating  reve- 
nues. It  will  be  recalled  that  a  general  increase 
in  freight  and  passenger  rates  was  made  effective 
in  June.  The  wage  increases,  however,  while 
awarded  in  May,  were  made  retroactive  to  Janu- 
ary 1.  In  his  final  report  to  the  President,  Direc- 
tor General  Hines  estimated  that  if  the  advances 
in  freight  and  passenger  rates  had  been  effective 
from  January  1,  1918  the  additional  revenues  in 
1918  would  have  been  $494,000,000.  This  amount, 
of  course,  would  have  wiped  out  the  deficit  and 
would  have  left  a  surplus. 

It  was  impracticable,  however,  to  increase  the 
rates  at  the  very  beginning  of  federal  control. 
The  reasons  wh}^  they  were  not  made  effective 
until  June  have  already  been  given.  The  record, 
therefore,  must  stand  as  given — a  deficit  of  over 
$200,000,000.*  This  deficit  and  the  deficit  in  1919 
are  frequently  referred  to  as  the  "cost"  of  Gov- 
ernment operation. 

As  this  phase  of  the  question  is  to  be  discussed 
in  the  review  of  the  results  for  the  entire  period 
of  federal  control,  it  may  be  passed  here  with  the 
brief  comment  that  so  far  as  the  ultimate  cost 
to  the  public  was  concerned  it  made  little  differ- 
ence whether  the  deficit  in  1918  was  met  from  the 
public  treasury,  or  Avas  avoided  (as  might  have 
been  done)  by  larger  increases  in  rates.    In  either 

*Thi8  is  the  loss  on  the  operation  of  Class  1  roads.  Including 
all  activities  of  the  Eailroad  Administration,  and  its  organization 
costs,  the  deficit  for  1918  was  about  $245,000,000. 


134  AMERICAN  RAILROADS 

case  the  public  pays  the  bill.  The  higher  cost  of 
railroad  operation,  however  met,  was  an  element 
in  the  cost  of  the  war;  and  the  amomit  of  the 
deficit  is  not  large  when  w^e  consider  the  cost  of 
other  large  scale  Government  activities  incident 
to  the  war.  The  outstanding  fact  is  that  during 
1918,  when  adequate  transportation  was  so  vitally 
necessary,  the  railroads  functioned  effectively  as 
a  part  of  the  war  machine,  and  they  served  the 
public  reasonably  w^ell  under  very  trying  condi- 
tions. The  writer  believes  that  the  results 
achieved  under  federal  control  during  1918  were 
more  favorable  than  would  have  been  possible 
under  a  continuation  of  private  control. 


CHAPTER  XIII 

THE  GENERAL  SITUATION  IN  1919 

THE  situation  with  which  the  Director  Gen- 
eral of  Railroads  had  to  deal  during  the 
second  year  of  federal  control  of  railroads 
was  different  in  many  respects  from  that  of  1918. 
During  the  first  year  (1918)  the  controlling  mo- 
tive was  to  operate  railroads  as  an  effective  part 
of  the  Government's  war  organization.  The  com- 
pelling forces  of  patriotism  were  behind  the  em- 
ployees, the  officials,  and  the  general  public.  The 
railroad  organization  worked  faithfully  to  pro- 
duce the  kind  and  the  volume  of  transportation 
which  was  vitally  necessary  for  war  purposes, 
and  the  public  cooperated  willingly  in  accepting 
war-time  restrictions  in  service.  As  has  already 
been  indicated,  the  results  were  fairly  satisfactory 
from  the  viewpoint  of  the  emergency  which  fed- 
eral control  was  intended  to  meet. 

The  less  satisfactory  record  of  1919,  the  second 
year  of  federal  control,  may  be  partly  explained 
by  the  changed  conditions.  The  spur  of  patriot- 
ism behind  the  working  forces  was  lacking.  The 
war-time  tension  relaxed  almost  immediately 
after  the  signing  of  the  armistice  and  there  was 
a  distinct  lowering  in  morale.  Shippers,  travelers, 
and  state-regulating  authorities  began  a  campaign 
to  restore  the  pre-war  status.    Congress  adopted 

135 


136  AMERICAN   RAILROADS 

a  critical  attitude  toward  the  Railroad  Adminis- 
tration and  delayed  or  withheld  the  appropria- 
tions recommended  by  the  Director  General.  The 
decline  in  traffic  and  the  shrinkage  in  net  income 
compelled  a  closer  scrutiny  of  expenses.  The  at- 
mosphere was  befogged  by  propaganda  designed 
to  create  a  favorable  public  attitude  toward  each 
of  the  many  plans  advanced  for  the  solution  of 
the  railroad  problem,  and  practically  all  of  he 
propagandists  set  out  to  discredit  the  record  of 
the  Railroad  Administration.  Then,  too,  there 
was  the  normal  reaction  on  the  part  of  the  gen- 
eral public  against  the  continuation  of  war-time 
Government  control. 

Just  before  Mr.  McAdoo's  retirement  from  the 
office  of  Director  General  he  advocated  a  continua- 
tion of  federal  control  for  live  years.  The  Federal 
Control  Act  provided  that  the  railroads  should 
be  returned  to  their  owTiers  within  21  months 
"folloAving  the  date  of  the  proclamation  by  the 
President  of  the  exchange  of  ratifications  of  the 
treaty  of  peace."  Mr.  McAdoo  expressed  the 
view  that  federal  control  during  one  year  of  war 
and  one  or  two  years  of  the  reconstruction  period 
(on  the  eve  of  a  presidential  campaign)  would 
not  furnish  an  adequate  test  of  the  advantages 
of  unified  operation.  He  feared  that  most  of  the 
''fundamental  reforms"  inaugurated  during  his 
regime  as  Director  General  could  not  be  continued 
"if  the  country  prefers  to  continue  in  existence 
the  hundreds  of  different  railroad  companies  as 
in  the  past."  He  believed  that  a  five-year  exten- 
sion of  operation  by  the  Government  would  per- 


AMERICAN  RAILROADS  137 

mit  the  successful  carrying  out  of  a  farsighted 
program  of  improvement  and  further  unification 
of  facilities,  and  that  this  additional  experience 
in  federal  operation  under  peace  conditions  would 
give  the  desired  demonstration  of  the  value  of 
unified  control  and  direction.  With  such  further 
experience  as  a  guide  Congress  could  more  in- 
telligently take  up  the  task  of  legislating  for  a 
permanent  solution.* 

On  January  11,  1919,  Mr.  McAdoo  retired  as 
Director  General  and  was  succeeded  by  Walker 
D.  Hines,  his  principal  assistant.  When  Mr. 
Hines,  early  in  February,  appeared  before  the 
Senate  Committee  on  Interstate  Commerce,  he 
supported  liis  predecessor's  suggestion  that  the 
tenure  of  federal  control  be  continued  for  five 
years.  At  the  same  time  he  made  certain  sug- 
gestions embodying  his  own  \'iews  as  to  what 
should  be  the  basis  of  a  permanent  plan  for  adop- 
tion at  the  end  of  the  five-year  period. 

In  advocating  an  extension  of  federal  control 
Mr.  Hines  placed  himself  on  the  defensive.  The 
opinion  was  held  in  some  quarters  that  the  Rail- 
road Administration  was  more  interested  in  per- 
petuating itself  than  in  responding  to  the  general 
putilic  demand  for  legislation  which  would  bring 
about  a  safe  and  speedy  return  of  the  roads  to 
private  management.  Mr.  Hines,  however,  never 
ardent  in  his  advocacy  of  an  extension  of  federal 
control,  soon  changed  his  position.  In  a  number 
of  public  addresses  throughout  the   South   and 

*  statement  of  Mr.  McAdoo  before  the  Committee  ou  Interstate 
Commerce,  United  States  Senate,  Janary  3,  1919. 


138  AMERICAN  RAILROADS 

West  during  the  late  spring  and  early  summer  of 
1919  he  suggested  a  plan  of  his  own  under  which 
the  roads  would  be  restored  to  their  owners  as 
soon  as  the  necessary  legislation  could  be  enacted, 
and  under  which  they  would  be  operated  in  a  small 
numhcr  of  large  systems,  their  directorates  to 
include  representatives  of  the  Government  and  of 
labor. 

Throughout  his  entire  term  of  office  Mr.  Hines 
was  subjected  to  much  criticism.  It  should  be 
noted,  however,  that  Mr.  Hines  could  take  some 
comfort  in  tlie  fact  that  this  criticism  came  from 
nearly  every  one  of  the  divergent  interests.  The 
view  of  the  railroad  executives  was  that  the  Ad- 
ministration was  not  always  fair  in  its  treatment 
of  the  interests  of  the  owners  of  the  properties, 
as  for  example  in  the  matter  of  maintenance,  and 
that  its  failure  to  advance  rates  in  1919  to  meet 
the  higher  operating  costs  unfairly  placed  upon 
the  railroads  the  onus  of  advancing  rates  after 
the  roads  were  returned.  These  rate  advances 
were  made  necessary,  in  greater  part,  ])y  radically 
increased  wage  scales  and  by  the  adoption  during 
the  closing  months  of  federal  control  of  the  re- 
strictive rules  in  the  so-called  national  agree- 
ments. On  the  part  of  labor  Mr.  Hines  was 
criticized  because  in  the  latter  part  of  1919  he 
refused  to  be  stampeded  into  granting  additional 
concerted  wage  demands  from  practically  every 
class  of  railroad  labor.  Instead  he  insisted  that 
these  demands  should  be  reviewed  by  a  tribunal 
to  be  appointed  by  Congress  for  that  specific  pur- 
pose.    Congress,   however,   refused   to  entertain 


AMERICAN  RAILROADS  139 

the  suggestion  and  reminded  the  Director  Gen- 
eral that  he  had  ample  authority  to  deal  with  the 
situation  himself.  On  the  part  of  shippers  there 
was  dissatisfaction  because  many  of  the  privileges 
which  were  curtailed  during  the  war  were  not 
promptly  or  fully  restored,  and  because  requests 
for  downward  revision  of  certain  rates  were  not 
all  favorably  acted  upon.  On  the  part  of  Con- 
gress there  was  fault-finding  because  of  the  large 
operating  deficits  and  there  was  a  disposition  to 
embarrass  the  Railroad  Administration  by  neg- 
lecting to  provide  the  working  capital  which  Mr. 
Hines  recommended.  On  the  part  of  the  state 
commissions  there  was  resentment  against  the 
continuation  of  the  war-time  power  of  the  federal 
administration,  which  crippled  the  states  in  their 
efforts  to  resume  intrastate  rate  regulation  on 
the  pre-war  basis. 

It  will  be  seen,  therefore,  that  Mr.  Hines'  ad- 
ministration failed  to  satisfy  any  one  group,  and 
that  he  was  beset  mth  difficulties  nuich  greater 
than  those  with  which  Mr.  McAdoo  had  to  deal 
during  his  war-time  regime.  Mr.  Hines  had  a 
thankless  task.  No  review  of  his  stewardship 
w^ould  be  complete  if  it  failed  to  record  a  tribute 
to  his  courage  in  adhering  consistenly  to  his  con- 
ception of  his  responsibility  to  the  broad  and  long- 
time interests  of  the  nation.  He  remained  in 
office  at  a  substantial  personal  sacrifice  and  se- 
verely taxed  his  health  by  devotion  to  his  work. 
If  he  made  mistakes  in  ijolicy,  they  w^ere  as  a 
rule  the  result  of  an  over-conscientious  attitude 
toward  his  duty  as  the  representative  of  the  Gov- 


140  AMERICAN  RAILROADS 

ernment.  During  a  large  part  of  his  term  in 
office  he  was  unable  to  consult  freely  with  the 
President  (who  was  in  France  or  ill  during  the 
greater  part  of  1919),  and  therefore  was  obhged 
in  many  important  matters  of  policy  to  act  upon 
his  own  initiative  and  responsibility. 

At  the  time  of  his  appointment  as  Director  Gen- 
eral Mr.  Hines  announced  that  he  proposed  to 
carry  forward  the  policies  "so  ably  put  into  effect 
by  Mr.  McAdoo — fidelity  to  public  interest,  a 
square  deal  for  labor,  with  not  onlj^  an  ungrudging 
but  a  sincere  and  cordial  recognition  of  its  part- 
nership, and  fair  treatment  for  the  owmers  of  the 
railroad  properties  and  for  those  "vnth  whom  the 
railroads  have  business  dealings."* 

*  Public  statement,  January  11,  1919. 


CHAPTER  XIV 

RELATIONS  WITH  STATE  COMMISSIONS;  ATTI- 
TUDE ON  RATE  ADJUSTMENTS  IN   1919 

ONE  of  the  first  important  steps  taken  by 
Mr.  Hines  after  he  became  Director  Gen- 
eral was  to  divide  the  Division  of  Public 
Service  and  Accounting  into  two  separate  divi- 
sions. The  late  Judge  Prouty  remained  in  charge 
of  accounting,  and  Max  Thelen,  formerly  chair- 
man of  the  California  Railroad  Commission  and 
of  the  National  Association  of  Railroad  Commis- 
sioners, was  appointed  Director  of  Public  Service, 
effective  February  1,  1919. 

Mr.  Thelen  was  selected  as  the  head  of  the 
newly  created  division  because  it  was  hoped  that 
by  reason  of  his  former  affiliations  and  the  re- 
spect with  which  he  was  held  by  the  state  regulat- 
ing bodies  he  might  be  able  to  accomplish  much 
in  easing  the  strained  relations  between  the  Rail- 
road Administration  and  the  Commissions  of 
the  several  states.  During  1918,  when  the  war 
was  in  progress.  Director  General  McAdoo  exer- 
cised to  the  full  extent  the  authority  conferred 
upon  him  by  the  President's  proclamation  and 
the  Federal  Control  Act,  assuming  complete  juris- 
diction over  intrastate  as  well  as  interstate  rates 
and  service.*    The  state  commissioners  were  not 

*  ' '  There  is  little  question  that  the  summary  manner  in  which 
the  increases  v,cre  put  through  was  deliberate,  and  designed  to 
forestall  any  interference  that  might  spring  from  public  dis- 
cussion."— Railroads  and  Government,  F.  H.  Dixon,  p.  159. 

141 


142  AMERICAN   RAILROADS 

only  })iac'lii'ally  ignored,  but  the  Director  Gen- 
eral, by  establishing  regional  and  district  traffic 
committees,  reporting  direct  to  the  division  of 
traffic,  usurped  certain  prerogatives  which  were 
cherished  by  the  state  commissioners.  During 
the  war  the  commissioners  felt  that  they  could 
do  no  more  than  protest,  but  after  the  armistice 
was  signed  they  insisted  upon  the  restoration  of 
their  powers  over  intrastate  rates,  service  and 
facilities. 

Following  quickly  after  Mr.  Thelen's  appoint- 
ment a  conference  was  held  between  the  Railroad 
Administration  and  a  committee  representing  the 
state  railroad  commissioners,  and  the  relations 
between  the  federal  administration  and  the  state 
authorities  were  clarified  by  the  publication  of 
General  Order  58,  of  February  20,  1919.  The 
order  read  as  follows: 

"In  order  to  clarify  the  relationship  between  the 
United  States  Railroad  Administration  and  the  State 
Railroad  and  Public  Service  Commissions,  all  officers 
and  employees  of  the  United  States  Railroad  Admin- 
istration shall  be  groverned  by  the  policies  and  regula- 
tions herein  set  forth,  as  follows: 

"(1)  Transportation  systems  under  federal  control 
continue  subject  to  the  lawful  police  regulations  of 
the  several  states  which  were  and  are  applicable  to 
privately  operated  transportation  sj'stems,  in  such  mat- 
ters as  spur  tracks,  railway  crossings,  .safety  appliances, 
track  connections,  train  service,  the  establishment,  main- 
tenance and  sanitation  of  station  facilities,  the  investi- 
gation of  accidents,  and  all  other  matters  of  local  ser- 
vice, safety  and  equipment.  It  will  be  the  policy  of  the 
Director  General  to  cause  the  orders  of  the  State  Cora- 
missions  in  these  matters  to  be  carried  out. 


AMERICAN  RAILROADS  143 

"(2)  In  all  proceediiitrs  of  the  character  specified  in 
paragraph  1  hereof,  formal  or  informal,  officers  and 
employees  of  the  United  States  Railroad  Administra- 
tion shall  recognize  the  jurisdiction  of  the  State  Com- 
missions and  shall  assist  them  in  developing  the  facts 
and  in  applying  such  remedies  as  may  be  necessary, 
and  shall  fully  cooperate  with  them. 

"(3)  In  all  formal  proceedings  of  the  character 
specified  in  paragraph  1  hereof  to  which  the  Director 
General  may  be  a  party,  he  will  consider  service  as 
having  been  made  on  him  if  made  on  the  federal  man- 
ager or  general  manager,  as  the  case  may  be,  of  the 
transportation  system  affected,  or  on  such  official  as 
the  federal  manager  or  the  general  manager,  respec- 
tiveh%  shall  designate,  and  whose  name  he  shall  file 
with  the  State  Commission  for  that  purpose.  The  federal 
manager,  or  if  none,  the  general  manager,  shall  desig- 
nate to  each  State  Commission  an  officer  convonientlj' 
locatpd  on  Avhom  such  service  may  be  made.  The  legal 
officers  of  the  United  States  Railroad  Administration 
are  directed  to  appear  in  such  ])roeeedi7igs  and  to 
present  fully  the  facts. 

"(4)  The  Federal  Control  Act  empowers  the  Presi- 
dent to  initiate  rates,  fares,  charges,  classifications, 
regulations  and  practises  b}^  filing  the  same  with  the 
Interstate  Commerce  Commission,  and  empowers  said 
Commission  to  review  the  justice  and  reasonableness 
thereof.  The  State  Commissions  take  the  position  that 
the  intrastate  rates  are  nevertheless  subject  to  their 
jurisdiction  and  it  will  be  the  policy  of  the  Director 
General  to  expedite  in  every  way  a  final  decision  by  the 
appropriate  Irilmnal  of  the  (juestion  thus  raised. 

"(5)  The  Directors  of  Traffic  and  of  Public  Service 
of  the  United  States  Railroad  Administration,  are 
directed  before  authorizing  advances  of  any  importance 
in  rates,  fares  or  charges,  either  interstate  or  state,  to 
submit  the  same  to  the  State  Commissions  in  the  states 
affected  for  their  advice  or  suggestions. 

"(6)  It  is  important  that  the  records  of  the  State 
Commissions  shall  be  continued  intact.     Transportation 


144  AMERICAN  RAILROADS 

sjrstems  under  federal  control  shall  file  with  the  State 
Commissions  for  information,  all  their  rate  schedules 
heretofore  or  hereafter  issued  during  the  period  of 
federal  control,  and  annual  and  other  reports  and  infor- 
mation as  to  matters  within  the  scope  of  federal  con- 
trol requested  by  State  Commissions  according  to  the 
provisions  of  state  statutes. 

"  (7)  All  officers,  agents  and  employees  of  the  United 
States  Railroad  Administration  are  directed  to  supply 
information  and  render  assistance  as  requested  by  State 
Commissions,  in  accordance  with  the  provisions  of  this 
order. ' ' 

It  will  be  FiOted  that  in  tliis  order  the  Director 
General  recognized  the  local  police  power  of  the 
states.  The  officers  and  employees  of  the  Railroad 
Administration  were  instructed  to  cooperate  with 
the  State  Connnissions,  and  the  directors  of  traffic 
and  of  public  service  were  told  to  secure  the  advice 
and  suggestions  of  the  appropriate  state  commis- 
sions before  authorizing  advances  of  any  impor- 
tance in  rates,  interstate  as  well  as  intrastate. 
The  fundamental  question  as  to  the  paramount 
authority  of  the  Federal  Government  was  left 
for  determir.ation  by  the  courts. 

The  publication  of  General  Order  58  did  much 
to  mollify  the  state  commissioners.  Throughout 
the  remainder  of  the  period  of  federal  control 
the  relations  between  the  Director  General  and 
the  state  regulating  authorities  were  harmonious. 
Mr.  Hiiies  adojDted  also  a  policy  of  seeking  the 
advice  and  cooperation  of  the  Interstate  Com- 
merce Commission.  That  body  had  been  virtually 
quiescent  during  the  year  1918,  since  under  the 
Federal  Control  Act  most  of  the  Commission's 


AMERICAN  RAILROADS  146 

powers  over  rates  were  delegated  to  the  Director 
General  during  the  period  of  federal  control. 

In  addition  to  these  measures,  which  afforded 
scope  for  action  on  the  part  of  the  public  regu- 
lating authorities,  steps  were  taken  by  the  Eail- 
road  Administration  which  gave  shippers  a 
greater  voice  in  the  councils  of  the  traffic  and 
operating  departments.  In  1918  the  shippers  had 
a  minority  representation  in  the  33  freight  traffic 
committees  which  were  created  to  consider  pro- 
posals for  changes  in  rates  or  rules.  Early  in 
1919  the  minority  representation  of  industrial 
traffic  managers  was  increased  to  equal  repre- 
sentation, and  the  shippers  had  representatives 
also  on  each  of  the  73  terminal  committees  created 
by  the  Administration  to  regulate  terminal  opera- 
tion, car  service,  and  similar  matters.  The  par- 
ticipation of  the  shippers'  traffic  experts  on  these 
traffic  and  terminal  committees  did  much  to  clear 
up  misunderstandings  or  to  clarify  the  points  of 
difference. 

The  general  upward  revision  of  freight  rates  in 
June,  1918,  tad  been  accomplished,  with  few  ex- 
ceptions, by  applying  a  horizontal  increase  of 
25%.  It  is  obvious,  therefore,  that  in  the  cases 
wherein  certain  commercial  relationships  were 
based  on  freight  rate  differentials  in  cents  per 
100  pounds,  the  application  of  the  percentage  in- 
crease had  the  effect  not  only  of  increasing  the 
rates,  but  also  of  changing  the  absolute  spread 
between  the  related  rates.  In  many  cases  the 
shippers  were  more  interested  in  maintaining  the 
differentials  than  they  were  in  the  absolute  rates. 


14.G  AMERICAN  RAILROADS 

Much  ol'  the  work  of  the  Division  of  Public  Ser- 
vice, the  Division  of  TrafiBc,  and  the  regional  and 
local  conimittoes  bad  to  do  ^vitb  readjusting  rates 
and  rules  so  as  to  restore  former  relationships. 
This  work  began  immediately  after  the  general 
rate  increase  of  June,  1918,  but  in  1919  it  was  car- 
ried on  more  intensively.  The  report  of  the 
Division  of  Traffic  for  1919  indicates  that  subse- 
quent to  August  1,  1919,  there  were  7,804  indi- 
vidual chaiiiics  authdrized.*  Of  these  rate 
changes  63%  applied  to  interstate  rates  and  37% 
affected  intrastate  rates.  The  nature  of  the 
changes,  in  per  cent  of  total,  is  shown  in  the  fol- 
lowing table,  taken  from  the  1919  annual  report 
of  the  Division  of  Public  Service : 

rKRCENTAGE    OF    TOTAL    CHANGES   IN    RATES 

Nature  of  Change                                           Interstate  Intrastate 

Reductions     76"/^  88% 

Advances   12 

Advances  and  reductions 7  8 

Advances  to  meet  decisions  of  I.  C.  C 5 

Corrections   of   errors 4 

Total     100  100 

While  there  was  also  some  activity  on  the  part 
of  the  state  commissions  and  other  representa- 
tives of  the  traveling  public  in  the  matter  of  pas- 
senger rate  adjustments,  very  little  was  done  to 
change  the  niinimnni  flat  rate  of  3  cents  pel'  mile 
established  l)y  Director  (Jeneral  McAdoo  in  June, 
1918.  Kequests  of  certain  states  to  have  rates 
higher  than  3  cents  per  mile  reduced  to  that  basis 
were  denied. 

•  The  report  does  not  specify  the  closing  date  of  the  period  to 
which  the  statistics  apply.  Presumably  the  period  was  from 
August  1,  1919,  to  the  date  of  the  report,  December  15,  1919. 


AMERICAN  RAILROADS  H7 

The  summary  of  the  results  for  1918,  given  in 
Chapter  XII,  drew  attention  to  the  deficit  of  ap- 
proximately $245,000,000.  The  tabulation  in  that 
chapter  shows  that  for  Class  1  roads  the  operat- 
ing revenues  had  increased  $853,868,213,  while  the 
operating  expenses  had  increased  $1,130,770,166. 
It  was  noted  further  that  if  the  rate  advances  of 
June,  1918,  had  been  made  effective  on  January  1, 
1918,  the  additional  revenue,  based  on  the  traffic 
which  actually  moved  during  the  first  five  months 
of  the  year,  would  have  been  $494,000,000.  This 
additional  revenue,  if  it  had  been  available,  would 
have  left  a  surplus  of  approximately  $249,000,000 
instead  of  a  deficit. 

When  Mr.  McAdoo  appeared  before  the  Senate 
Committee  on  Interstate  Commerce  on  January 
3,  1919,  (a  week  before  his  retirement  as  Director 
General)  he  estimated  that  the  results  for  1919 
would  show  a  surplus.  In  other  w^ords  he  believed 
that  witli  the  rate  increases  of  June,  1918,  in  effect 
throughout  the  entire  year  1919,  the  net  operating 
income  would  exceed  the  guaranteed  rentals.  In 
making  this  optimistic  estimate  he  did  not  antici- 
pate that  freight  traffic  in  1919  would  be  much 
smaller  than  in  1918,  nor  did  he  take  into  account 
the  possibility  of  further  advances  in  wage  rates 
and  further  increases  in  the  cost  of  materials.* 

•"Retrospection  is,  of  course,  far  H.'ifer  and  more  illuminating 
than  prophecy,  particularly  in  a  jioriorl  when  conditions  were 
constantly  shifting  and  the  country  was  face  to  face  almost 
daily  with  problems  for  the  solution  of  which  there  was  little 
if  any  j)recedent.  But  even  granting  all  this,  the  amazing  op- 
timism of  Director  General  McAdoo,  which  pervaded  his  testi- 
mony before  congressional  comniittoes  and  his  various  public  utter- 
ances, had  little  justification." — Hailmads  and  Governmrvt,  F. 
H.  Dixon,  p.  161. 


148  AMERICAN   RAILROADS 

When  the  ligures  for  the  early  months  of  1919 
became  avaihible  they  showed  startUng  deficits. 
The  net  resnlt  (in  even  figures)  for  Jaimary  was 
a  shortage  of  $36,000,000  mider  the  standard  re- 
turn ;  in  February  it  was  $35,000,000 ;  in  March  it 
was  $25,000,000.  During  the  first  six  months  of 
the  year  the  net  operating  income  fell  short  by 
over  $227,000,000  of  meeting  the  guaranteed  ren- 
tals.* 

During  the  early  part  of  1919  serious  con- 
sideration was  given  to  the  suggestion  that  there 
should  be  a  further  increase  in  rates,  and  the 
traffic,  operating,  and  accounting  divisions  made 
studies  which  were  intended  to  be  the  basis  for 
such  a  general  advance.  There  was  a  general  feel- 
ing througliout  the  Administration  that  substan- 
tial increases  would  be  necessary  to  enable  the 
Government  to  meet  its  guaranteed  rentals,  and 
tliat  the  Director  General  could  not  afford  to  pile 
up  additional  millions  per  month  upon  the  already 
large  deficit. 

Mr.  nines  listened  to  these  suggestions,  but  re- 
frained from  taking  action.  During  the  second 
half  of  1919,  when  it  appeared  that  he  did  not  in- 
tend to  order  the  advances,  and  when  the  second 
cycle  of  wage  increases  began  to  show  its  effect 
upon  operating  expenses,  the  executives  of  the 
railroad  companies,  looking  forward  to  the  return 

•  These  figures  apply  to  Class  1  roads.  They  do  not  include  the 
imaller  roads  and  the  terminal  companies,  nor  do  they  make  any 
allowances  for  losses  from  the  operation  of  the  cxjiress  and  Pull- 
man scrTices  and  the  water  lines,  the  expenses  of  the  central  and 
regional  administrative  organization,  or  claims  for  under-main- 
tenance. 


AMERICAN  RAILROADS  149 

of  the  roads  on  December  31,  1919,  were  seriously 
disturbed.  They  pressed  upon  Mr.  Hines  their 
view  that  he  should  exercise  his  authority  and  ad- 
vance rates,  so  that  the  properties  would  be  self- 
sustaining  when  they  were  turned  back  to  private 
operation. 

On  October  7,  1919,  Mr.  Hines  announced  his 
definite  conclusion  that  the  Government  should 
not  increase  the  rates.  On  October  13  the  Chair- 
man of  the  Association  of  Railway  Executives 
formally  protested  against  the  decision  and  sub- 
mitted a  resolution  adopted  by  the  Association 
which  insisted  ''that  the  duty  rests  upon  the  Gov- 
ernment to  restore,  on  its  own  initiative  and  by 
its  own  action,  the  relationship  between  revenues 
and  expenses  which  the  Government's  action  in  in- 
creasing expenses  had  disturbed,  and  that  appro- 
priate action  in  this  direction  is  necessary  in  order 
to  be  in  conformity  with  the  statement  of  the 
President,  when  the  railroads  were  taken  over  by 
the  Government,  that  investors  in  railroad  securi- 
ties might  rest  assured  that  their  rights  and  in- 
terests would  be  as  scrupulously  looked  after  by 
the  Government  as  they  would  be  by  the  directors 
of  the  several  railway  systems." 

In  reply  tt  this  protest  Mr.  Hines  declined  to 
change  his  position,  which  he  stated  had  been 
taken  with  the  approval  of  the  President.  Having 
decided  that  it  was  not  in  public  interest  to  make 
an  immediate  increase  in  rates  for  the  purpose  of 
increasing  the  revenues  of  the  Railroad  Adminis- 
tration during  the  remaining  months  of  federal 


160  AMERICAN   RAILROADS 

control,  Mr.  Hinos  held  that  a  fundamentally 
wrong  conception  was  involved  in  the  claim  that 
the  President  ought  to  exercise  the  emergency 
rate-making  power  for  the  purpose  of  deciding  as 
between  the  railroads  and  the  public  what  the 
former  should  charge  and  what  the  latter  should 
pay  after  the  end  of  federal  control.  He  held  that 
the  guarantee  applied  only  to  the  federal  control 
period  and  he  disagreed  with  the  railroad  execu- 
tives that  the  abnormal  increases  in  expenses  were 
peculiar  to  Government  operation.  In  his  opin- 
ion these  increases  would  have  taken  place  if  the 
Kailroad  Administration  had  not  been  in  exis- 
tence. 

There  is  an  apparent  inconsistency  in  the  Direc- 
tor General's  position  on  rate  increases  and  on 
payroll  increases.  If  it  was  wrong  for  him  to 
exercise  his  emergency  rate-making  powers  for 
deciding  what  the  railroads  should  charge  and 
what  the  public  should  pay  after  the  end  of  fed- 
eral control,  then  it  was  equally  wrong  for  him  to 
exercise  his  authority  in  the  concluding  months  of 
federal  control  for  deciding  what  labor  should 
charge  and  the  railroads  should  pay  after  the  end 
of  federal  control.  The  national  agreements, 
which  were  executed  on  the  eve  of  the  return  of 
the  railroads  to  private  management,  were  essen- 
tially wage  or  "man-hour"  increases  in  the  form 
of  restrictive  rules.  Technically  they  were  to  re- 
main in  force  only  during  the  short  remaining 
period  of  federal  control,  yet  as  a  practical  matter 
it  was  recognized  by  all  concerned  that  the  new 
rules,  as  well  as  the  rates  of  pay  promulgated 


AMERICAN   RAILROADS  151 

during  federal  control,  established  precedents 
which  would  continue  when  federal  control  ended. 
Such  action  was  contemplated  by  the  then  pend- 
ing legislation.  As  finally  drawn  the  Transporta- 
tion Act  of  1920  prohibited  the  railroads  from  re- 
ducing rates  or  changing  rules  of  the  Railroad  Ad- 
ministration during  the  first  six  months  of  re- 
sumed private  management,  and  vested  the  Rail- 
road Labor  Board  with  complete  authority  to 
determine  when  and  in  what  manner  future 
changes  might  be  made.  As  a  matter  of  fact  the 
national  agreements  are  still  in  effect  at  this  writ- 
ing, (July,  1922)  although  the  Labor  Board  has 
modified  many  of  the  more  restrictive  and  bur- 
densome rules. 

In  the  course  of  the  hearings  before  the  Senate 
Committee  on  Interstate  Commerce,  (April  12, 
1922),  Senator  Cummins,  the  chairman  of  the 
committee,  is  reported  as  having  made  the  follow- 
ing statement: 

"I  think  the  most  serious  complaint  that  can  be 
made  of  the  Railroad  Administration  lies  in  the  fact 
that  it  did  not  return  the  railroads  to  their  owners 
self-sustaininj?;  it  ought  to  have  established  rates  before 
the  railroads  were  returned  that  would  make  the  rail- 
roads reasonably  self-sustaininj^. 

"The  failure  to  do  that  not  only  imposed  upon  the 
railroads  a  most  unpopular  duty,  but  it  imposed  upon 
Congress  the  requirement  to  make  the  guarantee  run- 
ning from  the  first  of  March,  1920,  to  the  first  of  Sep- 
tember,  1920. 

"If  the  Railroad  Administralion,  in  anticipation  of 
the  increase  in  wages  which  it  knew  would  come  about, 
and  in  consideration  of  the  existing  fact  that  the  rates 
were  not  even   then  maintaining  the  properties — if   it 


162  AMERICAN   RAILROADS 

had  increased  the  rates  as  it  should  have  done,  the  rail- 
roads at  least  would  not  have  inherited  that  very  dis- 
agreeable performance ;  and  the  guarantee  that  the 
Government  has  to  bear  now  for  six  months  ■would 
not  have  drawn  upon  the  Treasury  as  it  has  drawn, 
and  as  it  must  continue  to  draw. 

"I  feel  that  there  is  a  very  just  complaint  against 
the  Railroad  Administration  in  that  regard,  far  beyond 
any  other  controversy  that  it  may  have  with  the  rail- 
roads. 

"It  was  just  as  much  the  duty  of  the  Government 
to  return  these  roads  with  rates  that  would  sustain 
them  in  their  operation  as  it  was  its  duty  to  return 
them  in  as  good  condition  physically  as  it  took  them. 

"And  that  is  a  matter  that  has  not  been  sufficiently 
understood  by  the  people  of  the  country.  And  I  think 
when  it  is  fully  understood,  that  very  much  of  the 
criticism  that  has  fallen  upon  the  railroads  since  that 
time  will  disappear.  I  have  had  that  in  my  mind  so 
long  that  T  felt  bound  to  give  it  expression  at  this 
time." 


CHAPTER  XV 

UPKEEP  OF  PHYSICAL  PROPERTY 

WITH  his  ijroclamation  of  December  26, 
1917,  taking  over  the  railroads  the  Presi- 
dent had  issued  a  statement  which  ex- 
plained why  the  step  was  necessary,  and  offered 
certain  assurances  to  the  holders  of  railroad  se- 
curities. Among  these  assurances  was  the  prom- 
ise that  he  would  immediately  recommend  to  Con- 
gress the  establishment  of  definite  guarantees  that 
the  railroad  properties  should  be  maintained  in  as 
good  repair  and  as  complete  in  equipment  as  when 
taken  over  by  the  Government.  The  recommenda- 
tion was  made,  and  it  was  adopted  by  Congress  as 
part  of  Section  1  of  the  Federal  Control  Act.  The 
principle,  however,  was  expressed  in  general 
terms.  The  accounting  details  were  left  to  be 
worked  out  later  in  the  contract  to  be  agreed  upon 
by  the  Director  General  and  the  individual  rail- 
road companies.  There  was  much  discussion  on 
this  point  between  the  legal  representatives  of  the 
Administration  and  of  the  railroad  companies, 
and  the  upkeep  section  of  the  standard  contract 
was  rewritten  several  times  before  an  agreement 
was  finally  reached.  As  finally  adopted  the  con- 
tract required  the  Director  General  to  expend  for 
maintenance  such  sums  as  would  be  requisite  in 
order  that  the  properties  might  be  retunied  to  the 

168 


164  AMERICAN  RAILROADS 

companies  at  the  end  of  federal  control  in  sub- 
stantially as  good  repair  and  substantially  as 
complete  in  equipment  as  they  were  on  Jan- 
uary 1,  1918.  As  no  inspection  or  appraisal 
of  condition  was  made  when  federal  control  began 
it  was  necessary  to  adopt  some  accounting  expe- 
dient to  measure  the  obligation  of  the  Government 
and  the  contract  contained  the  proviso  "that  the 
annual  expenditures  and  charges  for  such  pur- 
poses tluring-the  period  of  federal  control  on  such 
property,  and  the  fair  distribution  thereof  over 
the  same,  or  the  payment  into  funds  of  an  amount 
equal  in  the  aggregate. . .  .to  the  average  expendi- 
tures and  charges  for  such  purposes. ..  .duiing 
the  test  period  [three  years  ended  June  30,  19171 
....  shall  be  taken  as  a  full  compliance  with  the 
foregoing  covenant ....  Due  allowance  shall  be 
made  for  any  difference  that  may  exist  between 
the  cost  of  labor  and  materials,  and  between  the 
nmount  of  property  taken  over, ....  and  for  any 
difference  in  use  ....  substantial  enough  to  be  con- 
sidered, so  that  the  result  shall  be,  as  nearly  as 
practicable,  the  same  relative  amount,  character, 
and  durability  of  physical  reparation." 

During  the  year  1918,  while  the  war  was  in 
progress,  little  thought  was  given  to  questions  of 
final  accounting.  The  Administration  did  its  best 
to  maintain  tlie  properties  so  that  tliey  might  func- 
tion effectively  in  meeting  the  demands  of  war 
traffic.  No  limitations  as  to  maintenance  expendi- 
tures were  ])laced  u])on  the  federal  managers  ex- 
cept those  which  were  caused  by  shortages  in 
labor  and  materials.    But  when  the  war  was  over, 


AMERICAN  RAILROADS  155 

when  it  became  evident  that  the  railroads  would 
be  returned  to  private  operation  by  the  end  of 
1919,  and  when  the  decline  in  the  volume  of  traffic 
coupled  with  additional  increases  in  wages  and 
higher  material  costs  caused  alarming  deficits  in 
the  early  months  of  1919,  the  Director  General 
began  to  give  much  personal  attention  to  mainte- 
nance expenditures.  He  impressed  upon  the  re- 
gional directors  and  the  federal  managers  the  im- 
portance of  using  care  to  see  that  the  obligations 
of  the  Government  were  not  exceeded,  and  effec- 
tive steps  were  taken,  beginning  in  May,  1919,  to 
restrict  maintenance  expenditures  to  a  budget  al- 
lowance authorized  for  each  road  by  the  engineer- 
ing staff  of  the  central  administration. 

Early  in  the  year,  and  before  it  was  known  that 
a  budget  system  for  maintenance  expenditures 
would  be  enforced,  the  federal  managers,  follow- 
ing the  conventional  custom,  had  laid  out  their 
programs  for  the  maintenance  season  according 
to  their  conception  of  the  necessities,  and  most  of 
them  had  organized  their  forces.  They  were, 
therefore,  greatly  disturbed  when  they  received 
instructions,  based  on  the  Director  General's  tele- 
gram of  May  27  to  regional  directors,  to  limit  the 
June  maintenance  of  way  expenditures  to  an 
amount  which  would  bear  the  same  ratio  to  operat- 
ing revenues  that  such  expenditures  on  each  road 
during  the  entire  three  j'cars  of  the  test  period 
bore  to  the  operating  revenues  of  that  period. 
While  it  was  generally  understood  that  the  in- 
structions applying  only  to  June  expenditures 
were  intended  merely  as  an  emergency  brake  upon 


Irtf,  AMERICAN    RAILROADS 

exitoiitlitiiros  pending  a  more  deliberate  deter- 
mination of  the  program  for  the  remainder  of  the 
year,  and  while  the  drastic  restrictions  applying 
to  June  were  quickly  canceled,  the  effect  was  to 
slow  up  the  maintenance  programs  until  the 
budget  system  could  be  installed,  and  to  disor- 
ganize the  maintenance  forces.* 

It  was  a] 'parent  that  the  Director  General 
feared  that  the  natural  desire  of  the  federal  mana- 
gers would  be  to  err  on  the  side  of  liberality  in  ex- 
penditure so  that  the  properties  could  be  put  in 
good  condition  prior  to  their  return  to  private 
management,  and  that  he  took  a  serious  view  of 
his  responsibility  of  protecting  the  Government 
against  overexpenditure.  He  believed  that  it 
would  be  better  to  lean  toward  the  side  of  under- 
expenditure  and  settle  in  cash  at  the  end  of  federal 
control,  placing  upon  the  railroad  companies  the 
burden  of  proving  undermaintenance,  rather  than 
run  the  risk  of  going  beyond  the  obligation  of  the 
Government  and  thereby  place  upon  it  the  burden 
of  proving  overexpenditure. 

Throughout  his  entire  term  of  office  Director 
General  Ilines  held  to  the  view  and  frequently 

•"This  change  in  the  maintenance  of  way  policy  of  the  Kail- 
road  Administration  from  one  of  most  liberal  authority  by  the 
individual  road  to  a  plan  of  rigid  control  of  expenditures  led  to 
a  considerable  undercurrent  of  resentment  ujjon  the  part  of  rail- 
road officers,  both  federal  and  corporate,  although  much  of  the 
criticism  would  have  been  avoided  if  the  statistical  data  on  main- 
tenance had  been  compiled  soon  enough  to  have  permitted  the 
formulation  of  a  maintenance  program  before  the  inception  of  the 
season's  work.  Coming  in  June,  at  the  height  of  the  season, 
this  curtailment  was  particularly  unfortunate."  Railway  Age, 
June  2,  1920,  vol.  69,  p.  58. 


AMERICAN   RAILROADS  1/57 

stated  that  the  maintenance  expenditures  of  the 
Railroad  Administration  were  being  made  on  a 
scale  which  would  meet  the  Government's  obliga- 
tion under  the  contract  proviso  based  on  the 
test  period.  It  was  his  belief  that  at  the  end  of 
federal  control  the  Government  would  be  indebted 
to  some  of  the  carriers  for  inadequacy  in  some 
elements  in  maintenance  and  that  on  the  other 
hand  some  of  the  carriers  would  be  indebted  to  the 
Government  for  overmaintenance  in  certain  ele- 
ments. On  the  whole,  he  believed  that  these  w^ould 
about  offset  each  other,  and  in  estimating  the  net 
financial  result  of  federal  control  in  his  last  report 
to  the  President  he  made  no  allowance  for  claims 
for  undermaintenance. 

An  examination  of  the  expenditures  during  fed- 
eral control  would  indicate  that  Mr,  liines  had 
reason  to  believe  that  his  position  was  sound. 
The  average  yearly  expenditures  for  maintenance 
(way,  structures  and  equipment)  during  the  test 
period  were  $963,970,719.  In  1918  they  were  $1,- 
742,001,074,  and  in  1919  they  were  $1,982,793,296. 
These  figures  indicate  that  the  increase  in  expen- 
ditures over  the  test  period  was  81%  in  1918  and 
106%  in  1919,  an  average  increase  of  93%  for 
the  two  years.  The  increase  in  maintenance  of 
equipment  was  relatively  greater  than  in  main- 
tenance of  way — 105%  for  equipment  and  76% 
for  Avay  and  structures.*  No  information  as  to 
the  relative  cost  of  labor  and  prices  of  material 

"Based  upon  statistics  compiled  by  the  Operating  Statistios 
Section  of  the  Railroad  Administration.  The  figures  apply  to  all 
Class  I  roads. 


168  AMERICAN   RAILROADS 

in  the  test  and  control  periods  has  been  made 
public,  but  it  is  unlikely  tliat  wage  rates  and  ma- 
terial costs  combined  were  more  than  93%  greater 
than  in  the  test  period. 

None  the  less,  the  idoperties  were  not  fully 
maintained.  In  the  single  item  of  cross  ties  the 
average  renewals  per  year  in  the  test  period 
were  83,885,109.  The  average  yearly  renewals 
in  1918  and  1919  were  71,303,083.  This  does  not 
give  a  complete  picture  because  in  many  cases  the 
renewals  in  1918-19  were  in  ties  of  lower  grade 
than  those  used  in  the  test  period.  The  average 
annual  renewals  in  rails  during  the  test  period 
\sere  2,041,676  tons.  The  rail  renewals  in  1918- 
19  were  at  the  rate  of  1,821,561  per  year.  The 
ballast  renewals  in  the  test  ])eriod  were  17,065,- 
599  cubic  yards.  The  comparable  figures  for  1918- 
19  were  16,157,522,  but  in  some  cases  gravel  ballast 
was  used  instead  of  crushed  stone.*  In  addition 
to  the  inadequacies  in  the  renewals  of  ties,  rail 
and  ballast,  there  was  inadequacy  in  the  mainte- 
nance of  structures,  mainly  in  painting.  These, 
however,  cannot  be  stated  in  exact  units. 

In  the  case  of  locomotives  the  maintenance  was 
fairly  adequate,  but  both  freight  and  passenger 
cars  were  in  relatively  inferior  condition  when  the 
roads  were  returned.  The  failure  to  keep  up 
freight  car  repairs  may  be  attributed  in  greater 
part  to  pooling.  AVith  respect  to  passenger  cars 
it  was  impracticable  to  release  them  from  service 
for  the  usual  periodical  shop  overhauling,  because 

•From  evidence  prepared  by  Bureau  of  Railway  Economics  for 
presentation  before  Senate  Committee  on  Interstate  Commerce  in 
hearings  on  Senate  Resolution  23,  June  15,  1921. 


AMERICAN  RAILROADS  159 

every  car  was  urgently  needed  in  1918  for  the 
movement  of  troops  from  camps  to  seaboard  and 
in  1919  for  the  demobilization  of  the  army. 

The  case  of  freight  cars  requires  further  ex- 
planation. Prior  to  federal  control  the  joint  use 
of  freight  cars  by  all  roads  was  governed  by  the 
car  service  and  the  per  diem  rules  of  the  American 
Railway  Association  and  the  interchange  rules  of 
the  Master  Car  Builders'  Association.  These 
rules  were  entirely  suspended  or  substantially 
modified  during  the  period  of  federal  control.  The 
car  service  rules  prescribe  the  manner  of  joint 
use;  the  i^er  diem  rules  fix  the  rate  of  daily 
rentals ;  and  the  Master  Car  Builders'  code  defines 
the  responsibility  for  repairs.  We  are  particularly 
interested  in  the  question  of  repairs.  In  brief, 
the  code  holds  the  car  owner  responsible  for  re- 
pairs made  necessary  by  ordinary  wear  and  tear 
in  service  both  when  the  car  is  at  home  or  on  an- 
other road.  The  user  of  the  car  is  held  respon- 
sible for  repairs  made  necessary  by  "unfair" 
usage,  such  as  that  caused  by  train  accidents.  The 
light  running  repairs  required  to  make  good 
broken  or  missing  parts  are  made  by  the  road 
v.'hich  has  the  car,  when  the  need  of  such  repairs 
becomes  apparent.  The  cost  of  making  good  or- 
dinary wear  and  tear  is  charged  to  the  owner; 
the  cost  of  repairs  occasioned  by  rough  usage  is 
charged  to  the  road  responsible  for  the  damage. 
In  the  course  of  time,  usually  every  two  or  three 
years,  the  cumulative  effect  of  wear  and  tear  and 
accidental  damage  necessitates  a  general  over- 


160  AMERICAN   RAir.ROADS 

hauling  of  the  car.  In  iioiinal  times  this  is  com- 
monly done  by  the  owning  road  when  the  car  is  at 
home.  When  a  car  is  on  a  line  other  than  the 
owiiing  line  the  repairs  are  confined  ordinarily  to 
those  required  to  put  the  car  in  condition  to  be 
sent  home  in  service.  The  using  road  naturally 
restricts  its  work  on  cars  of  other  companies  to 
that  which  is  necessary  to  keep  the  car  in  condi- 
tion for  day  to  day  service.  This  means  that  the 
t>  pical  road  takes  care  of  the  running  repairs  of 
both  its  own  cars  and  those  of  other  roads  while 
on  its  rails,  and  confines  the  heavy  general  repair 
work  to  its  own  cars.  Prior  to  federal  c(Mitrol  the 
typical  road  had  about  60%  of  its  cars  at  home 
and  40^^^  were  on  other  lines. 

During  federal  control  the  princii)les  of  unifica- 
tion were  applied  in  a  degree  which  with  respect 
to  freight  cars  caused  a  virtual  disregard  to  own- 
ership. Under  the  instructions  no  distinction 
was  to  be  made  between  "home"  and  "foreign" 
cars  in  making  repairs.  In  theory  each  road  was 
required  to  regard  eveiy  car  as  its  own  car  and 
to  make  the  needed  repairs,  both  light  and  gen- 
eral, to  the  limit  of  its  capacity.  In  the  distribu- 
tion of  cars  little  effort  was  made  to  return  them 
to  the  owning  road.  C'onsequently  the  percentage 
of  "home"  cars  on  "home"  roads  was  reduced 
from  60^1  to  from  10  to  20%. 

If  the  instructions  which  required  each  road  to 
assume  responsibility  for  the  general  repairs  of 
all  cars  on  its  lines  could  have  been  carried  out 
the  results  would  have  been  more  satisfactory. 
But  as  each  road  had  difficulty  in  obtaining  labor 


AMERICAN   RAILROADS  Ifil 

and  materials,  it  was  natural  that  the  heavy  re- 
pairs were  devoted  principalh'  to  the  few  home 
cars  that  happened  to  be  at  home  and  the  work  on 
foreign  cars  was  confined  to  running  repairs  or 
patch  work  which  merely  kept  the  car  in  condition 
for  day  to  day  service.  As  the  heavier  work  was 
neglected  it  was  inevitable  that  the  general  con- 
dition of  cars  should  suffer.  It  w'as  inevitable 
also  that  the  larger  proportion  of  patch  work  or 
temporary  repairs  substituted  for  the  thorough- 
going general  repairs  which  would  have  been 
given  by  the  owners  in  normal  times  meant 
that  the  total  expenditures  w^ould  not  bear 
the  usual  relation  to  the  general  condition  of 
maintenance.  And  in  addition  to  this  factor, 
which  explains  in  greater  part  why  freight  cars 
were  returned  in  inferior  condition  notwithstand- 
ing the  expenditure  of  more  than  twice  the  main- 
tenance cost  of  the  test  period,  there  was  the  fac- 
tor of  relative  efficiency  of  labor.  The  restrictive 
rules  of  the  national  agreements  and  the  much 
larger  percentage  of  inexperienced  employees  had 
the  effect  of  increasing  expenses  without  increas- 
ing output.* 

A  recent  statement!  by  Kalpli  Budd,  president. 
Great  Northern  Railway,  contains  statistics  which 

*The  factor  last  mentioned  was  a  main  point  of  difference  be- 
tween the  Director  GciuthI  iiikI  tlie  railroad  companies  in  coininjf 
to  an  agreemout  on  the  terms  of  the  final  settlement.  It  is  un- 
necessary to  pursue  the  point  fiirtlier  here.  It  was  in  controversy 
also  in  connection  with  the  guarantee  paid  by  the  Government 
during  the  first  six  montlis  under  the  operation  of  the  Transporta- 
tion Act  of  1920  (March  1  to  September  1,  1920).  The  Inter- 
state Commerce  Commission  decided  that  the  relative  efficiency  of 
labor  should  not  be  considered  in  the  settlement. 

\  Railway  Revieu-,  June  10,  1922,  p. 875. 


162  AMERICAN  RAILROADS 

illuminate  this  point.  During  the  three  years  of 
the  test  period  (1915-16-17)  the  Great  Northern 
repair  cost  per  car  owned  Avas  $57.02,  and  85% 
of  their  cars  wore  on  their  own  rails.  In  1918  the 
average  cost  was  $154.11,  and  they  had  45%  of 
their  own  cars  at  home.  In  1919  the  average  cost 
per  car  was  $1G5.15,  with  37%  of  their  own  cars 
at  home.  During  the  follo\\ang  two  years,  under 
higher  wage  rate  and  the  national  agreement 
rules,  and  with  deferred  maintenance  to  make  up, 
the  repair  cost  per  car  was  $223.78  in  1920  and 
$187.04  in  1921.  The  percentage  of  home  cars  on 
home  rails  in  1920  was  42,  l)ut  in  the  following 
year,  when  conditions  had  become  normal  so  far 
as  car  location  was  concerned,  the  percentage  of 
Great  Xorthern  cars  on  Great  Northern  rails 
was  eighty-three. 


I 


CHAPTER  XVI 

ADDITIONS  AND  BETTERMENTS  DURING 
FEDERAL  CONTROL 

THE  inability  of  the  railroads  in  1917  to  fi- 
nance additions  to  and  improvements  in 
facilities  and  equipment  was  one  of  the  im- 
portant reasons  for  federal  control.  The  Federal 
Control  Act  appropriated  $500,000,000  as  a  revolv- 
ing fund  to  be  used  to  pay  the  expenses  of  the 
Railroad  Administration  and  to  finance  additional 
facilities  or  equipment  required  for  Government 
operation.  The  Act  provided  that  these  additions 
and  betterments  could  be  ordered  when  "neces- 
sary or  desirable  for  war  purposes  or  in  the  pub- 
lic interest  on  or  in  connection  with  the  property 
of  any  carrier."  Advances  could  be  made  from 
the  revolving  fund  for  all  or  an}^  part  of  the  ex- 
pense of  such  additions  or  improvements,  such  ad- 
vances to  be  charged  against  the  carrier,  to  bear 
interest,  and  to  be  repaid  so  tliat  the  Government 
would  be  fully  reimbursed  in  the  final  settlement. 
As  an  offset  to  the  interest  charges  on  such  ad- 
vances, the  Director  General  was  required  by  the 
contract  to  pay  interest  to  the  company  upon  the 
cost  of  such  work  from  the  date  of  its  completion, 
in  addition  to  the  guaranteed  rental.  A  distinc- 
tion was  made  between  work  required  solely  for 
war   purposes   and   therefore   of   no   permanent 

168 


16i  AMERICAN  RAILROADS 

value  to  the  company,  and  work  which  would  inure 
to  the  permanent  benefit  of  the  company.  The  cost 
of  work  re(iiiired  solely  for  war  jnirposes  was  to 
be  assumed  by  the  Government.  Tracks  or  other 
facilities  at  military  camps  are  examples.  As  an 
indication  of  the  extent  of  such  work,  it  may  be 
noted  that  Director  General  Davis,  in  a  statement 
to  the  House  Committee  on  Appropriations,  May 
5,  1921,  stated  that  claims  then  pending  against 
the  Government  on  that  account  might  aggregate 
$200,000,000. 

There  was  relatively  little  of  betterment  work 
under  way  when  federal  control  began.  The  rea- 
sons for  the  slowing  up  of  such  work  is  discussed 
at  some  length  in  the  introductory  chapter.  Pend- 
ing a  determination  of  policy,  the  Director  Gen- 
eral continued  the  improvements  and  enlarge- 
ments then  in  progress.  On  February  2,  1918,  the 
railroads  were  directed  to  prepare  and  send  in 
budgets  of  improvements  immediately  required  to 
increase  capacity  and  efficiency  and  to  promote 
safety  in  operation.  In  the  letter  of  instructions 
the  following  policy  was  prescribed: 

In  determininfr  what  additions  and  betterments,  in- 
cluding equipment,  and  what  road  extensions  should 
be  treated  as  necessary,  and  what  work  already  entered 
upon  should  be  suspended,  please  be  guided  by  the 
following  general  principles : 

(a)  From  the  financial  standpoint  it  is  highly  impor- 
tant to  avoid  the  necessity  for  raising  any  new  capital 
which  is  not  absolutely  necessary  for  the  protection 
and  development  of  the  required  transportation  facil- 
ities to  meet  the  present  and  prospective  needs  of  the 
country's  business  under  war  conditions.  From  the 
standpoint  of  the  available  supply  of  labor  and  mate- 


AMERICAN   RAILROADS  165 

rial,  it  is  likewise  highly  important  that  this  supply 
shall  not  be  absorbed  except  for  the  necessary  purposes 
mentioned  in  the  preceding  sentence. 

(b)  Please  also  bear  in  mind  that  it  may  frequently 
happen  that  projects  which  might  be  regarded  as  highly 
meritorious  and  necessary  when  viewed  from  the  sep- 
arate standpoint  of  a  particular  company  may  not  be 
equally  meritorious  or  necessary  under  existing  condi- 
tions, when  the  Government  has  possession  and  control 
of  the  railroads  generalh^  and  therefore  when  the 
facilities  heretofore  subject  to  the  exclusive  control  of 
the  separate  companies  are  now  available  for  common 
use  whenever  such  common  use  will  promote  the  move- 
ment of  traffic. 

The  policy  of  the  Administration  was  more 
definitely  defined  in  General  Order  12,  dated 
March  12,  1918.  Repeating  the  substance  of  the 
instructions  contained  in  the  letter  just  quoted, 
the  order  went  further  in  requiring  that  the  con- 
struction of  new  lines  or  branches  or  the  extension 
of  existing  lines  should  not  be  undertaken  without 
the  approval  of  the  Director  General.  The  same 
restriction  applied  to  the  ordering  or  construction 
of  new  locomotives  or  cars.  Work  under  way 
prior  to  federal  control,  or  new  work,  if  in  har- 
mony with  the  policies  outlined  in  the  letter  of 
February  2,  could  be  continued  or  undertaken 
when  the  capital  charges  for  any  one  project  would 
not  exceed  $25,000.  All  projects  to  cost  in  excess 
of  $25,000  each  w^re  to  be  referred  to  the  Direc- 
tor General  for  approval. 

The  budgets  submitted  in  response  to  this  re- 
quest called  for  expenditures  chargeable  to  capi- 
tal account  amounting  in  the  aggregate  to  $1,329,- 
000,000.     The  total  cost  of  the  proposed  woi-k 


166  AMERICAN  RAILROADS 

would  be  «ubstantially  greater  as  a  portion  of 
the  expenditures  would  be  chargeable  to  operat- 
ing expenses  under  the  accounting  rules  of  the 
Interstate  Commerce  Commission.  These  budg- 
ets were  revised  by  the  divisions  of  capital  ex- 
penditure and  of  operation  and,  as  finally  ap- 
proved by  the  Director  General,  were  reduced  to 
$975,000,000  chargeable  to  capital  accounts.  This 
amount  was  subsequently  increased  as  the  need 
of  additional  improvements  or  new  equipment 
(particularly  new  freight  cars  and  locomotives) 
became  apparent  so  that  the  total  capital  expen- 
ditures authorized  in  1918  amounted  to  $1,278,- 
814,998.  Because  of  shortages  in  the  supply  of 
labor  and  materials,  however,  it  was  not  possible 
to  expend  as  much  as  one-half  of  the  authorized 
amounts.  The  actual  expenditures  of  the  year  on 
capital  account  were  about  $592,000,000, 

After  the  signing  of  the  armistice,  and  when 
Congress,  in  February,  1919,  showed  an  inclina- 
tion to  embarrass  the  Eailroad  Administration  by 
refusing  to  approve  the  appropriation  recom- 
mended by  the  Director  General  for  the  enlarge- 
ment of  the  revolving  fund,  the  program  for  new 
work  was  curtailed.  The  limit  of  $25,000  allow- 
able without  prior  approval  was  reduced  to 
$1,000,  and  the  individual  companies  in  most 
cases  were  obliged  to  finance  the  work.  While  in 
any  event  the  companies  would  be  obliged  finally 
to  pay  for  additions  and  betterments  (subject  to 
subsequent  claim  for  reimbursement  for  improve- 
ments solely  for  war  purposes)  the  Administra- 
tion in  1918  and  early  1919  advanced  the  needed 


AMERICAN  RAILROADS  167 

money  from  its  revolving  fund.  The  depletion  of 
that  fund  early  in  1919  made  it  necessary  tor  the 
Administration  to  require  that  subsequent  ex- 
penditures on  capital  account  should  come  from 
the  treasuries  of  the  companies  as  the  work  was 
undertaken. 

The  total  authorizations  for  the  capital  accounts 
proportion  of  betterment  work  in  1919  were  less 
than  one-third  of  those  authorized  m  1918      A 
substantial  part  of  the  work  begun  m  1918,  how- 
ever  was  continued  (including  new  freight  cars 
and  locomotives  ordered  in  that  year  but  not  re- 
ceived until  1919)    so   that   the   actual   charges 
against  capital  accounts  in  1919  were  about  $571,- 
000  000,  or  substantially  as  much  as  m  1918.    In- 
cluding similar  expenditures  made  jn  January  and 
February,  1919,  which  were  about  $37,000,000,  the 
total  charges  to  capital  account  for  additions  and 
betterments  made  during  the  entire  two  Jears  and 
two  months  of  federal  control  were  about  $1,2UU,- 
000,000.    The  details  are  listed  below : 

Capital  Expenditures  During  Federal  Control 
Iteni  1918  1919  Two  years 

Eoadway  and  track....   $294,000,000  $247,000,000  $    541,000,000 
'TrequTpmen?..'"^';       19,000,000       21,000,000  40,000,000 

""'ehaserbn^'R-''""     161,000,000       64,000,000        225,000,000 
""chased'bTRR  AdS'     118,000,000     239,000,000        357,000,000 

Total  1918  and  1919  $592,000,000  $571,000,000  $1,163,000,000 
Estimated  expenditures  in  January  and  ^^  ^^^  ^^^ 

February,  1920 '       ' 

Grand    total $1,200,000,000 


168  AMERICAN  RAILROADS 

All  analysis  of  the  details  in  the  annual  report 
of  the  division  of  capital  expenditures,  1919, 
shows  that  among  the  items  grouped  above  as 
"Roadway  and  track,"  the  following  items,  in  the 
order  in  which  they  appear,  called  for  the  greatest 
expenditures : 

(a)  Additional   yard   tracks,   sidings   and   industrial 

tracks. 

(b)  Shop  buildings,  enginehouses,  and  appurtenances. 

(c)  Additional  main  tracks. 

(d)  Bridges,  trestles,  and  culverts  (renewals). 

(e)  Rails  and  other  track  materials  (renewals). 

(f)  Freight  and  passenger  stations,  office  buildings, 

and  other  station  facilities. 

(g)  Shop  machinery  and  tools. 

The  expenditure  of  over  $582,000,000  for  new 
equipment  was  distributed  as  follows: 

Purchased     Constructed     Purchased 
Type  of   Equipment  by  in  Railroad    by  Railroad 

Railroads  Shops      Administration      Total 

Locomotives    1,910         393       2,114*       4,417 

Freight-train  cars  . . .   25,600     12,909     95,704     134,213 
Passenger-train   cars....    700  107  ...  807 

The  improvements  to  existing  equipment  con- 
sisted mainly  of  the  application  of  superheaters 
and  mechanical  stokers  to  locomotives. 

Director  General  Hines,  in  his  final  report  to 
the  President,  February  25,  1920,  covering  the  14 
months  ended  March  31,  1920,  made  the  following 
comment  with  respect  to  new  equipment: 

"The  equipment  ordered  by  the  Railroad  Adminis- 
tration was  allocated  to  the  various  railroads  accord- 
ing to  its  judgment  as  to  their  needs.    The  locomotives 

"Included  200  Bussian  locomotivea  leased  from  the  war  depart- 
ment. 


«l 


AMERICAN  RAILROADS  169 

were  accepted  as  a  rule  without  much  protest.  The  alloca- 
tion of  the  cars,  however,  raised  great  protest.  Em- 
phatic claim  was  made  that  the  cars  ought  to  be 
regarded  as  a  war  burden  and  paid  for  by  the  Govern- 
ment, also  claims  were  made  that  the  cars  were  not 
needed  in  the  number  or  of  the  character  allocated. 
Upon  receipt  of  any  such  protest  each  case  was  con- 
l.  sidered  on  its  merits  and  such  modifications  made  in 

J  the  allocation  as  seemed  to  be  just.     When  it  became 

clear  that  the  prices  of  equipment  at  the  end  of  federal 
control  promised  to  be  higher  than  the  Government 
paid  for  the  equipment  in  question,  the  objections  to 
the  allocations  disappeared  in  many  cases  and,  in  fact, 
some  companies  which  had  objected  to  the  allocations, 
because  too  large,  sought  and  received  additional  equip- 
ment out  of  the  amounts  not  allocated." 

This  comment  has  a  bearing  upon  the  standardi- 
zation of  equipment.  The  subject  is  treated  ex- 
tensively in  Chapter  VII. 

In  the  same  report  Mr.  Hines  concludes  his  dis- 
cussion of  capital  expenditures  with  the  following 
pertinent  observations  on  the  pressing  need  for 
further  investments  in  additions  and  betterments : 

' '  During  a  considerable  period  immediately  preceding 
federal  co'ntrol,  the  railroad  companies  had  cut  down 
the  amount  of  their  expenditures  for  additions  and  bet- 
terments and  equipment  because  of  the  high  prices, 
difficulty  in  obtainuig  deliveries,  absence  of  funds,  and 
so  forth.  The  Railroad  Administration  was,  of  course, 
not  able  to  make  any  plans  whatever  with  respect  to  a 
program  of  capital'  expenditures  for  either  way  and 
structures  or  equipment  for  the  calendar  year  1920; 
and  it  is  understood  that  comparatively  little  has  been 
done  in  that  direction  up  to  the  present  time  by  the 
railroad  companies.  The  result  is  that  at  this  time 
very  large  expenditures  are  called  for  on  the  railroads 
in  the  public  interests  to  increase  their  efficiency  and 


170  AMERICAN  RAILROADS 

enable  them  to  meet  the  growing  demands  for  trans- 
portation. Unless  the  railroad  companies  shall  be  able 
to  adopt  and  enforce  the  important  unifications  of  facil- 
ities and  equipment  and  control  in  the  common  interest 
of  the  handling  of  the  business  in  times  of  stress,  the 
available  facilities  and  equipment  will  turn  out  to  be 
wholly  unequal  to  the  requirements  of  the  public.  Even 
with    substantial    continuance    of    all    the    important  1 

methods  of  unification  and  common  control,  the  neces-  f 

sitj'  for  very  large  capital  expenditures,  both  of  way  I 

and  structures  and  for  new  equipment,  will  be  very 
great." 


CHAPTER  XVII 


i 


POST-WAR  LABOR   POLICIES  OF  THE 
DIRECTOR  GENERAL 

THE  second  year  of  federal  control  was 
marked  by  acute  dissatisfaction  on  the  part 
of  labor  and  by  many  strikes.  A  substan- 
tial part  of  the  time  of  the  Director  General  and 
the  Director  of  Operation,  as  well  as  the  entire 
time  of  the  Director  of  Labor,  was  spent  in  labor 
negotiations.  At  one  time  it  was  necessary  for 
President  Wilson  to  take  an  active  part  in  a  con- 
troversy with  the  shop  crafts. 

The  labor  situation  in  1918,  and  the  policies  of 
Director  General  McAdoo  in  dealing  with  em- 
ployees, are  discussed  in  Chapter  XI.  In  that 
year,  during  11  months  of  which  the  United  States 
was  engaged  in  the  war,  Mr.  McAdoo  adopted  a 
fairly  hberal  policy  in  advancing  wages  and  in 
conceding  principles  favorable  to  labor.  When 
Mr.  McAdoo  assumed  the  duties  of  Director  Gen- 
eral he  found  that  the  classified  employees,  whose 
extreme  demands  in  1917  for  greater  compensa- 
tion had  not  been  met  by  the  railroad  managers, 
were  in  the  mood  to  force  the  issue  even  by  at- 
tempting to  paralyze  railroad  service  by  a  general 
strike  when  the  nation  was  at  war.  Prompt  assur- 
ance that  the  demands  of  the  employees  would 
have  immediate  and  sympathetic  attention  by  the 

171 


I 

I 


172  AMERICAN   RAILROADS 

Director  General,  and  that  the  increases  when 
made  would  be  retroactive  to  the  beginning  of 
federal  control  (January  1,  1918),  together  vdih 
an  assurance  that  the  Director  General's 
"cabinet"  would  include  as  Director  of  Labor  the 
chief  executive  officer  of  one  of  the  railroad  labor 
unions,  cleared  the  atmosphere.  While  there  was 
some  dissatisfaction  when  the  wage  increases 
were  announced  in  May,  it  was  not  serious,  and 
further  upward  revision  in  the  wages  of  the  dis- 
satisfied classes  effectively  checked  the  tendency 
to  fight  for  the  higher  scales  of  compensation  then 
applying  to  the  war  industries.  On  the  whole,  the 
attitude  of  labor  in  1918  was  one  of  loyalty  to  the 
Administration  and  of  willingness  to  work  faith- 
fully so  that  the  railroads  could  meet  the  stupen- 
dous war-time  transportation  demands. 

Following  the  signing  of  the  armistice  on  No- 
vember 11,  the  situation  quickly  changed.  The 
cool  reception  which  was  accorded  to  Mr.  Mc- 
Adoo  's  proposal  that  federal  control  should  be  ex- 
tended five  years,  or  to  the  close  of  1923,  indicated 
clearly  that  Congress,  responding  to  insistent  pub- 
he  opinion,  Avould  adopt  legislation  under  which 
the  railroads  would  be  returned  to  private  man- 
agement as  soon  as  the  transfer  could  safely  be 
made.  In  May,  the  President  announced  that  the 
railroads  would  be  returned  to  their  owners  bv  the 
end  of  1919. 

The  employees  had  fared  so  well  under  federal 
control,  and  their  leaders  had  found  it  so  much 
easier  to  obtain  concessions  from  the  Director 
General  than  from  the  railroad  managers  under 


AMERICAN  RAILROADS  173 

former  private  control,  that  early  in  1919  they 
adopted  a  policy  of  attempting  to  get  as  much 
more  in  further  wage  increases  and  favorable 
rules  as  was  possible  to  obtain  from  the  Adminis- 
tration while  it  continued  in  existence.  Under 
such  circumstances,  Mr.  Hines,  who  succeeded  Mr. 
McAdoo  as  Director  General  on  January  11,  1919, 
was  confronted  with  a  difficult  task  in  holding 
these  demands  within  reasonable  bounds  and  in 
maintaining  the  morale  of  employees.  He  could 
not  invoke  the  spur  of  patriotism,  so  effective  in 
1918.  The  war  was  over  and  it  had  been  won. 
Profiteers  and  others  had  made  and  were  making 
fortunes.  Labor  outside  of  railroad  service  was 
still  receiving  war-inflated  wages.  It  was  natural 
then  that  the  railroad  workers  should  exert  every 
effort  and  should  use  the  entire  strength  of  their 
organizations  to  obtain  the  greatest  possible  ad- 
vantage while  conditions  were  favorable  for  the 
purpose.* 

*"It  is  not  ^vithout  significance  that  the  leaders  of  the  railroad 
unions  and  a  large  body  of  the  membership  indorsed  the  move- 
ment for  permanent  nationalization  following  the  war  experience. 
This  sudden  shifting  of  position  on  the  part  of  the  leaders,  most 
of  whom  had  previously  been  opposed  to  the  policy,  can  be  in- 
terpreted as  a  shrewd  estimate  of  what  federal  management 
meant  to  them.  They  had  had  their  first  taste  in  the  Adamson 
Act.  Upon  this  as  a  foundation  they  built  up  their  powerful 
national  organization  of  the  war  time,  under  the  sympathetic 
observation  of  the  first  Director  General  and  Avith  the  active 
assistance  of  his  Director  of  Labor.  It  is  no  exaggeration  to 
say  that  the  gains  made  by  railroad  labor  during  the  26  months 
of  federal  operation  in  the  power  of  collective  bargaining,  in 
the  development  of  union  organization,  in  the  standardization  and 
nationalization  of  practises  and  policies,  were  greater  than  in 
the  entire  previous  period  of  their  existence.  That  they  desire 
to  perpetuate  these  gains  under  private  operation  is  no  more 
than  human,"     Bailroads  and  Government,  F.  H.  Dixon,  p.  189. 


174  AMERICAN  RAILROADS 

Following  the  general  wage  advances  and  the 
general  adoption  of  the  basic  eight-hour  day  in 
May,  1918,  there  was  a  cycle  of  additional  in- 
creases. The  shop  crafts  were  the  first  to  re- 
ceive attention  on  July  25,  1918;  then  the  clerical 
forces  and  maintenance  of  way  employees  on 
September  1 ;  then  the  telegraphers  and  signalmen 
on  November  16;  and  then  the  station  agents  on 
November  23.  In  1919,  the  following  additional 
supplements  to  General  Order  27  were  promul- 
gated granting  higher  wage  rates  and  favorable 
working  rules  for  the  classes  of  employee  speci- 
fied: 

Supplement  14,  January  25,  employees  of  police  de- 
partment. 

Supplement  15,  April  10,  enguiemen  and  firemen. 

Supplement  16,  April  14,  conductors  and  trainmen. 

Supplement  17,  April  14,  Pullman  conductors  and 
porters. 

Supplement  18,  April  14,  restaurant  and  dining  car 
employees. 

Supplement  19,  April  14,  express  service  employees. 

"With  the  issuance  of  the  last  of  these  supple- 
ments the  Director  General  announced  that  the 
''war  cycle"  of  w^age  increases  had  been  com- 
pleted and  that  any  further  increases  would  have 
to  be  considered  in  the  light  of  new  conditions.* 

*"In  the  spring  of  1919  retail  prices  for  everything  the  labor- 
ing man  had  to  buy  were  continuing  to  rise,  and  further  in- 
creases were  then  predicted.  The  great  question  that  then  con- 
fronted me  at  that  time  was  wliether  I  would  shape  my  policy 
as  to  encourage  and  apparently  render  inevitable  a  still  further 
increase  in  the  cost  of  living,  or  whether  I  would  shape  it  so 
as  not  to  be  an  influence  in  that  direction.  I  felt  that  the 
country  was  involved  in  a  vicious  upward  spiral  at  that  time;  that 


AMERICAN  RAILROADS  175 

The  announcement,  however,  did  not  deter  the 
formulation  and  presentation  of  new  wage  de- 
mands from  practically  all  classes  of  employee. 
The  shop  crafts  were  more  insistent  than  otner 
classes  and  in  August,  1919,  forced  the  issue  by 
a  threat  to  strike  when  the  demands  were  not 
o-ranted  The  situation  became  so  serious  tnat 
President  Wilson  found  it  necessary  to  intervene 
in  support  of  the  Director  General  and  a  nation- 
wide strike  was  averted  by  a  compromise  offer 
which  gave  the  men  a  fraction  of  the  increases 

S-' "' ■—  ?="=  SiM-K 

Eon  tha  if  I  could  hold  the  level  of  ra  koad  ^agesJ^here  xt 
^^fl  would  render  a  very  important  public  service,  so  I  took 
The  posftLn  that  I  would  not  Avar  a  general  increase  in  wages, 
the  PO^^tion  that  .^  ^^^^  ^^^  ^^^^.^.^^  j  ^^^'JT, 

scribe'd,  and  while  I  felt  and  saw  with  P-^-^^^-^^^^^^t: 
mv  Dolicy  ought  to  be,  it  was  quite  clear  that  I  could  i^o^  \fP"^; 
^IwSaints    as    to    wage    inequalities    or    working    conditions. 
There  were  not  only  numerous  extreme  demands  being  pressed  on 
behalf  of  v^rfous  o^rganizations  and  employees,  but  there  was  the 
most  extreme  agitation  going  on  within  the  organizations    agita- 
Son  of  the  mos?  extremf  kinds;  the  most  extreme  types  of  labor 
^.^itators  were  at  work   and  were   threatening  to   overthrow   the 
more  coLeTvative  and  experienced  leaders  who  in  my  opinion  were 
Endeavor  nglTn  the  interest,  not  only  of  the  laboring  man    but  of 
the  public   to  help  control  a  situation  of  very  great  difficulty     In 
that^situation  I  felt  that  it  was  of  the  highest  importance  that 
I  should  Vonsider  with  patience  and  justice  any  claims  that  were 
L  Kor  readjustments^n  wages  and  in  -o^^-g -f  ;oT  made 
RtiU  insistine  I  did  not  feel  a  general  increase  ought  to  be  maae 
in  thelevyof  wages.''     (Testimony  of  Walker  D.  Hines   former 
Director  Generlfbef ore   Senate   Committee   on   Interstate   Com- 
merce,  January  24,  1922). 


176  AMERICAN   RAILROADS 

demanded.  The  men  at  lirst  refused  to  accept  the 
Director  General's  decision,  but  after  the  Presi- 
dent had  taken  a  hand  in  the  affair,  and  the  whole 
subject  was  given  much  publicity,  the  leaders  pre- 
vailed upon  the  militant  minority  of  the  union 
membership  to  make  the  best  of  the  award.  With 
the  moderate  increase  in  wages,  was  coupled  an 
assurance  of  a  national  agreement  which  meant 
as  much,  if  not  more,  to  the  organization  than 
wage  rates.  This  agreement  will  be  referred  to 
in  detail  in  another  part  of  this  chapter. 

While  these  negotiations  were  in  progress  the 
executive  officers  of  the  shop  crafts  had  much  dif- 
ficulty in  restraining  a  substantial  part  of  their 
members.  AVithin  their  ranks  were  many  who 
were  radical  in  view  and  some  of  them  aspired  to 
overthrow  and  supersede  the  leaders  then  in  of- 
fice. As  a  result  there  were  many  unauthorized 
strikes  of  sliopmen  throughout  the  country,  all  of 
which  were  without  sanction  of  their  executive  of- 
ficers. These  officers  did  all  that  they  could  do  to 
restrain  the  men  and  induce  them  to  return  to 
their  jobs  and  await  the  outcome  of  orderly  ne- 
gotiations, and  the  Director  General  notified  the 
strikers  that  their  demands  as  a  whole  would  not 
be  considered  until  all  of  the  strikes  were  termi- 
nated. While  a  few  of  the  strikes  were  serious  in 
their  effects,  most  of  them  were  sporadic  and 
brief. 

These  unauthorized  strikes,  however,  were  not 
wholly  on  account  of  wages.  Out  of  the  33  strikes 
among  railroad  and  express  service  employees 
but  10  related  specifically  to  wage  rates.    The  ma- 


AMERICAN  RAILROADS 


177 


jority  of  thorn  were  the  reflex  of  the  disposition 
of  the  employees  to  take  matters  of  discipline 
into  their  own  hands.  Here  is  a  complete  list  of 
such  cases  (omitting  the  10  which  were  based 
upon  wage  demands)  abstracted  from  the  1919 
annual  report  of  the  Di\asion  of  Labor: 


Employees  and  rail- 
roads   involved 


Cause  of  strike. 


Adjustment 


Jan.  3  \  Shopmen,  Atlantic 
Coast  Line  R.  R., 
Wilmington,   N.   C. 


Yard  employees,  Ya- 
zoo &  Mississippi 
Valley  Ry.,  St. 
Louis-San  Francisco, 
and  Union  R.  R.. 
Memphis,   Tenn. 

Shopmen,  Atchison, 
Topeka  &  Sante  Fe 
R.  R.,  Prescott,  Ariz. 


17     Clerks,    Seaboard    Air 

Line     Ry.,     Raleigh, 

N.  C. 
29     Shopmen,      Great 

Northern   R.   R.. 

Great  Falls,  Mont. 


Machinists,  Seaboard 
Air  Line  Ry.,  Sa- 
vannah,   Ga. 


Demand  for  discharge 
of  employee  who  re- 
fused  to  join   union. 


Demand  for 
of  colored 
men. 


removal 
switch- 


Mar.    11 


Apr. 


May 


June 


Clerks,  Nashville, 
Chattanooga  &  St. 
Louis  R.  R.,  Nash- 
ville,   Tenn. 

Shopmen,  Delaware, 
Lackawanna  &  Wes- 
tern R.  R.,  Scranton, 
Pa. 

Locomotive  tender  & 
car  repairmen,  47th 
St.  Shops,  Chicago, 
Rock  Island  &  Paci- 
fic   R.    R.,    Chicago, 

Carmen,  Norfolk  & 
Western  R.  R.,  Co- 
lumbus,   Ohio. 


Steel  car  repairmen, 
Chesapeake  &  Ohio 
R.  R.,  Huntington, 
W.  Va. 

Locomotive  and  car 
department  em- 
ployees, Baltimore  & 
Ohio  R..  R.,  Hollo- 
way,    Ohio. 


Demand     for    removal 
of    general    foreman. 


Demand  on  the  super- 
intendent for  dismis- 
sal of  chief  clerk.  _ 

Demand  for  jurisdic- 
tion over  positions  of 
engine  inspector. 


Misunderstanding  with 
regard  to  removal  of 
coupon  from  em- 
ployees' bonds  of 
the  third  liberty 
loan. 

Demand  for  removal 
of    federal    auditor. 


Demand  for  removal 
of  efficiency  speed-up 
man. 

Dispute  as  to  jurisdic- 
tion over  work  of 
painting  front  ends 
of    locomotives. 

Demand  for  removal 
of  six  employees  who 
refused  to  pay  fines 
assessed  by  organi- 
zation. 

Protest  against  re- 
moval of   foreman. 


Protest  aKainst  demo- 
tion of  foreman,  ac- 
count  dispatching 
locomotives  with  fed- 
eral  defects. 


Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad,  in  accor- 
dance with  their  working 
agreement. 
Do. 


Returned     to     work      and 
controversy    adjusted    by 
employees  and  officials  of 
the   railroad. 
Do. 


Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad,  in  accor- 
dance with  their  working 
agreement. 

Returned  to  work  uPon 
explanation  by  officials 
or  reasons  for  deductions 
made. 

Demand  refused.  Returned 
to  work,  management  re- 
instating striking  em- 
ployees as  far  as  pos- 
sible. 

Returned      to      work      on 

basis  of  settlement  ar- 
rived at  with  the  officials 
of   the   road. 

Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad,  in  accor- 
dance with  their  working 
agreement. 

Demand  withdrawn.  Re- 
turned  to   work   May   8. 


Request  denied.  Returned 
to    work. 

Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad,  in  accor- 
dance with  their  working 
agreement. 


178 


AMERICAN  RAILROADS 


Date 


Employees  and  rail- 
roads   involved 


Cause  of  strike. 


Adjustment 


June 

S 

7 

July 

17 

26 

Aug. 

11 

21 

22 

26 

Sept. 

17 

Oct. 

28 

Shopmen,  various 
points,  Norfolk  & 
Western    R.    R. 


Shop  employees,  Penn- 
sylvania R.  R.,  Al- 
toona.  Pa. 


Shop  employees.  Sea- 
board Air  Line  R. 
R.,   Tampa,    Fla. 


Shopmen,  Missouri, 
Kansas  &  Texas  R. 
R.,  Wichita  Falls, 
Tex. 

Carmen,  Norfolk  & 
Western  R.  R.,  East 
Radford,   Va. 


Blacksmiths  and  ma- 
chinists, Missouri, 
Kansas  &  Texas  R. 
R.,  Parsons,  Kans., 
and  Denison,  Tex. 


Carmen,  Peoria  &  Pe- 
kin  Union  R.  R., 
Peoria,   II. 

Steel  car  repairers, 
Chesapeake  &  Ohio 
R.  R.,  Silver  Grove, 
Ky. 


Boilermakers,  Los 
Angeles  &  Salt  Lake 
R.  R.,  Las  Vegas,  N. 
Mex. 


Protest  against  dis- 
charge of  eight  em- 
ployees and  demand 
for  removal  of  fore- 
man. 

Demand  for  removal 
of  general  foreman, 
and  alleged  discrim- 
inntion  against  two 
members  of  boiler- 
makers'  organization; 
also  certain  local 
grievances. 

Protest  against  work- 
ing on  cars  going  to 
phosphate  mines 
where  men  were  on 
strike. 
Demand  for  payment 
of  time  lost  account 
frequent  delays  of 
shop   train. 

Protest  against  re- 
instatement of  objec- 
tional   employee. 


Dispute  between 
blacksmiths  and  ma- 
chinists as  to  juris- 
diction over  oxweld 
work. 


Dissatisfaction  with 
change  in  hours  of 
beginning  work. 

Protest  against  work- 
ing on  basis  of  three 
mechanics  to  one 
helper. 


Demand     for    removal 
of     foreman. 


Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad  in  accord- 
ance with  their  working 
.■igreement. 

Returned  to  work  and 
controversy  adjusted  by 
joint  investigation  be- 
tween committee  of  shop 
crafts,  railroad  officials, 
and  mechanical  depart- 
ment. Division  of  Opera- 
tion. 


Returned     to     work 
protest  withdrawn. 


and 


Shopmen,  Atlanta,  Bir-     Demand   for   discharge 
miugham    &    Atlantic       of     foreman. 
R.  R.,   Fitzerald,  Ga. 


Request  denied.  Men  re- 
turned to  work  with 
understanding  that  effort 
would  be  made  to  avoid 
delays. 

Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad,  in  accor- 
dance with  their  working 
agreement. 

Returned  to  work  with 
understanding  that  con- 
troversy would  he  set- 
tled by  railway  em- 
p  1  o  y  e  e  s  '  department, 
American  Federation  of 
Labor. 

Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the    railroad. 

Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad,  in  accor- 
dance with  their  working 
agreement. 

Returned  to  work  and 
controversy  adjusted  by 
employees  and  officials  of 
the  railroad,  in  accor- 
dance with  their  working 
agreement. 

Men  returned  to  work. 
Request   denied. 


Tt  will  be  noted  that  most  of  the  trouble  was 
among  the  miskilled  workers  in  the  mechanical 
crafts,  where  the  radical  element  was  strongest. 
The  train  service  brotherhoods  were  concerned 
in  but  one  strike,  serious  in  its  effect  during  the 
few  days  of  its  life,  called  locally  in  Southern 
California  (without  authority  from  the  national 


AMERICAN  RAILROADS  179 

executive  officers)  in  sympathy  "with  the  striking 
employees  of  an  interurban  electric  road. 

The  compromise  increase  in  wage  for  the  shop 
crafts  (4  cents  per  hour)  was  incorporated  in  the 
first  national  agreement.  This  agreement  which 
in  addition  to  wage  rates  established  new  rules 
and  extended  the  scope  of  other  rules  already  i^ro- 
mulgated  by  Supplement  4  to  General  Order  27, 
was  executed  by  the  Director  General  on  Septem- 
ber 20,  1918,  and  the  rates  of  pay  were  made  re- 
troactive to  May  1.  On  behalf  of  the  employees 
affected  it  was  signed  by  the  chief  executive  of- 
ficers of  the  six  shop  crafts,  viz : 

International  Association  of  Machinists 

International  Brotherhood  of  Boilermakers,  Iron  Ship- 
builders and  Helpers  of  America 

International  Brotherhood  of  Blacksmiths  and  Helpers 

Amalgamated'  Sheet  Metal  Workers  International 
Alliance 

International  Brotherhood  of  Electrical  Workers 

Brotherhood  of  Railway  Carmen. 

While  the  large  majority  of  the  employee  mem- 
bers of  these  unions  were  engaged  in  locomotive 
and  car  shops,  the  organizations  also  controlled 
certain  employees  in  the  services  of  maintenance 
of  way,  structures,  signal,  and  telegraph  and 
telephone  lines. 

This  national  agreement  with  the  shop  crafts 
was  followed  by  similar  agreements  with  four 
other  organizations,  viz: 

Brotherhood  of  Maintenance  of  Way  Emplo.yees  and 
Railway  Shop  Laborers,  executed  November  22,  1919 ; 

Brotherhood  of  Railway  Clerks  (including  freight 
handlers  and  certain  other  station  service  employees), 
executed  January  1,  1920; 


180  AMERICAN  RAILROADS 

Brotherhood  of  Stationary  Firemen  and  Oilers,  effective 
January  16,  1920; 

Brotherhood  of  Railroad  Signalmen,  effective  February 
1,  1920. 

These  four  agreements  applied  only  to  classi- 
fications and  other  working  conditions.  They  car- 
ried with  them  no  further  increases  in  wage  rates. 

Another  important  concession  was  made  to 
labor  in  the  fall  of  1919  when  the  Director  Gen- 
eral, on  his  own  initiative  and  without  a  favor- 
able recommendation  from  the  Board  of  Railway 
"Wages  and  Working  Conditions,  authorized  the 
payment  of  punitive  overtime  (at  the  rate  of  time- 
and-one-half)  to  engine  and  train  crews  in  slow 
freight  service. 

Outside  of  the  4  cents  per  hour  increase  granted 
to  the  sliop  crafts  on  September  20  (retroactive 
to  May  1),  the  punitive  overtime  basis  for  slow 
freight  service,  and  the  five  national  agreements 
applying  to  working  conditions,  the  Director 
General,  with  the  approval  of  the  President,  re- 
sisted all  pressure  for  further  wage  advances  in 
1919.  During  the  controversy  with  the  shopmen 
and  others  in  midsummer,  the  Director  General 
suggested  to  the  appropriate  committees  in  Con- 
gress that  the  whole  matter  be  referred  to  and 
passed  upon  by  a  commission  appointed  by  Con- 
gress. Congress,  however,  refused  to  relieve  the 
Director  General  of  the  disagreeable  task,  and  re- 
minded him  that  under  the  Federal  Control  Act 
he  was  authorized  and  required  to  make  such  de- 
cisions himself. 

About  this  time  the  bills  upon  which  the  Trans- 
portation Act  of  1920  was  based  were  under  con- 
sideration on  Capital  Hill  and  it  was  plain  that 
the  new  law  would  provide  a  tribunal  of  some 


AMERICAN  RAILROADS  181 

kind  for  the  orderly  adjustment  of  labor  disputes 
when  private  control  of  railroads  was  re-estab- 
lished. The  Director  General  insisted  that  the 
final  decision  as  to  the  whole  subject  of  railroad 
^yages  in  general  should  be  left  for  the  determina- 
tion of  whatever  body  Congress  should  create  for 
the  purpose.  The  President  took  the  position 
that  it  would  not  be  practicable  to  make  the  de- 
cision during  the  brief  remaining  period  of  fed- 
eral control,  but  that,  in  accordance  with  previous 
assurance  given  by  him,  he  would  use  his  influence 
to  expedite  consideration  of  the  wage  demands  as 
much  as  possible  after  the  expiration  of  federal 
control.  The  final  disposition  of  the  demands  by 
the  United  States  Labor  Board  in  Maj^  1920,  mil 
be  referred  to  in  the  review  of  the  year  1920. 

Large  increases  in  wage  rates  and  expensive 
concessions  to  labor  on  conditions  of  employment 
were  phenomena  of  the  war.  Their  effects  upon 
the  railroad  payroll  were  probably  no  greater  in 
degree  than  upon  the  labor  costs  of  other  in- 
dustries. Li  fact  the  general  average  percent- 
age of  increase  in  railroad  wage  rates  during  the 
years  1918  and  1919  was  probably  less  than  in 
other  directions.  The  railroad  increases,  how- 
ever, affected  payrolls  containing  the  names  of 
approximately  two  millions  of  employees.  It  was 
the  magnitude  of  the  absolute  increases  rather 
than  the  degree  of  the  increase  that  attracted  pub- 
lic attention  and  provoked  criticism. 

The  effect  of  the  several  general  wage  advances 
on  the  payroll  expenses  of  the  railroads  under 
federal  control,  is  shown  in  the  follomng  tabula- 
tion prepared  by  the  Railroad  Administration  for 


182 


AMERICAN  RAILROADS 


the  subcommittee  of  House   Committee   on  Ap- 
propriations, April  12,  1920: 


General  Order  27 
(  substantially 
recommendation 
of  Lane  Com'n) 

Supplement  4 


Supplements    7 
and  8 


Supplement  13 


Supplements  14, 
17  and  18 

Supplements  15 
and  16 

Increase  in  pay 
under  equaliza- 
tion adjustment 
effective  May  1, 
1919 

Time  and  one- 
half  for  over- 
time allowed 

Time  and  one- 
half  for  over- 
time and  other 
adjustments  in 
pay 

Total     


Employees  affected 


All  employees  re- 
ceiving less  than 
$250   per   month 


Shop  employees 

Maintenance  of  way 
employees  and 
clerks 


Agents 
tors 


and    opera- 


Policemen,  dining 
and  sleeping  car 
employees 

Enginemen  and 
trainmen 


Shop  employees 


Enginemen  and 
trainmen  in  road 
freight  service 

Maintenance  of  way 

employees 

Clerks 


Effec- 
tive 
date 


191! 
Jan. 


Jan. 

Sept. 

Oct. 


1919 
Jan. 


Jan. 


May 


Dec. 


Dec.    1 
1920 
Jan. 


Estimated 
annual  in- 
crease  in 
payroll, 
chargeable 
to  operating 
expenses 


J360, 000.000 

209,000,000 

190.000,000 

25,000,000 

8,000,000 

60,000,000 

60,000,000 

38,000,000 

25,000,000 

.$965,000,000 


In  the  aggregate  the  higher  wage  rates  and  the 
more  favorable  working  rules  made  effective  dur- 
ing federal  control  had  the  effect  of  increasing 
the  railroad  wage  costs  at  the  annual  rate  of  at 
least  one  billion  dollars.  The  estimate  is  based 
upon  a  comparison  of  wage  earnings  at  the  end 
of  federal  control  with  those  of  December,  1917. 
In  making  it  the  wage  advances  of  1918  as  well  as 
those  of  1919,  the  effect  of  the  universal  applica- 
tion of  the  eight-hour  day,  and  the  added  expense 


AMERICAN  RAILROADS  183 

of  punitive  rates  for  overtime  are  taken  into  con- 
sideration. During  the  latter  part  of  1919  Mr. 
Hines  stated  that  the  wage  rates  in  effect  at  that 
time,  expressed  in  average  earnings  per  hour  or 
per  day,  were  approximately  56%  greater  than 
those  of  December,  1917.  Between  the  date  of  his 
statement  and  the  termination  of  federal  control 
further  upward  adjustments  were  made,  such  as 
the  application  of  punitive  overtime  in  freight 
train  service  and  the  adoption  in  the  national 
agreements  of  many  new  rules  which  had  the  ef- 
fect of  swelhng  payroll  costs.  These  rules  not 
only  increased  the  compensation  to  the  individual, 
but  required  the  employment  of  more  men  for  the 
same  amount  of  work. 

An  indication  of  the  effect  of  the  higher  wage 
rates  and  the  changes  in  working  rules  upon  net 
income  is  seen  in  the  following  table  which  shows 
the  distribution  of  the  dollar  of  operating  reve- 
nues for  Class  1  roads  during  the  years  ended  De- 
cember 31,  1916  to  1919,  inclusive:* 

Item                   1916  1917  1918  1919 

Labor     40.8  43.3  53.6  55.3 

Fuel     (locomotive) 7.0  9.8  10.2  9.2 

Loss   and   damage 0.9  1.1  1.3  2.3 

Iniuries  to  persons 0.8  0.8  0.7  0.8 

Insurance     0.3  0.4  0.2  0.0 

Depreciation    and    retirements 3.3  2.9  2.4  2.4 

Material,      supplies      and      miscel- 
laneous*     12.5  12.2  13.1  15.6 

Taxes 4.4  5.3  4.6  4.5 

Hire  of  equipment  and  joint  facility 

rents  1.1  0.9  08  1.1 

Eeturn    on    investment 28.9  23.3  13.1  8.8 

*  Includes  uncollectible  railway  revenues. 

*  Table  15,  exhibits  of  Bureau  of  Eailway  Economics,  pre- 
sented  as   evidence   before   the    Senate    Committee   on   Interstate 


181  AMERICAN   RAILROADS 

Such  exception  as  may  be  taken  to  the  labor 
policy  of  the  Eailroad  Administration  applies 
particularly  to  the  punitive  and  restrictive  rules 
in  the  national  agreements,  to  the  extension  of 
the  principle  of  standardization,  and  to  the  ex- 
treme centralized  control  of  labor  relations.  The 
national  agreement  with  the  shop  crafts  was 
drawn  up  by  a  committee  of  four  subordinate  of- 
ficers of  the  Administration  in  conference  with 
representatives  of  the  labor  organizations.  No 
member  of  this  committee  of  subordinate  officers 
had  had  any  railroad  managerial  experience  of 
responsible  character.  The  chairman  had  once 
been  an  enginehouse  foreman;  one  member  of 
the  committee  was  serving  the  Administration 
while  on  leave  of  absence  from  his  regular  duties 
as  president  of  one  of  the  unions  affected  by  the 
agreement ;  the  third  member  had  once  served  as 
an  enginehouse  or  boilershop  foreman;  the  fourth 
member  had  once  been  a  locomotive  fireman  and 

Commerce,  June  15,  1921.     Exhibit  22,  of  tlie  same  series,  gives 
the  average  compensation  per  employee: 

Item                                     1916              1917  1918                 1919 
Average   compensation: 

Per  employee  per  hour.?     0.278   $        0.318  )        0.4G0  )        0  554 

Per    employee    per    day.        3.048             3.334  4.460             5.207 

Per  employee  per  year.    892.            1.004.  1,419.  1.486. 

About  90%  of  all  employees  are  paid  hourly  rates;  the  re- 
mainder are  paid  daily  or  monthly  rates. 

These  figures,  of  course,  take  no  account  of  the  further  in- 
creases awarded  in  1920  by  the  Railroad  Labor  Board  created  by 
the  Transportation  Act.  The  average  compensation  in  1920, 
assuming  that  the  increases  of  May  had  been  in  effect  throughout 
the  year,  was  as  follows: 

Per  employee  per  hour |         0.704 

Per   employee  per  day ,  ,  ,  6.458 

Per   employee   per   year 1,926. 

In  1920  labor  received  ^^9.9  cents  out  of  each  dollar  of  operat- 
ing revenues. 


AMERICAN   RAILROADS  185 

had  served  as  a  local  chairman  for  the  fireman's 
organization  on  one  road.  The  agreement  as 
tentatively  agreed  to  by  this  committee  and  the 
representatives  of  the  miions  was  sent  to  the  Di- 
rector General  with  the  recommendation  of  the 
Director  of  the  Division  of  Operation  and  was 
signed  by  the  Director  General  on  September  20, 
1919.  It  should  be  noted  that  neither  the  regional 
directors  nor  the  federal  managers  in  charge  of 
the  respective  railroad  units  had  approved  the 
agreement,  and  that  it  was  not  recommended  by 
the  Board  of  Railway  Wages  and  AVorking  Condi- 
tions. 

As  a  matter  of  fact  the  regional  directors  in  the 
early  stages  of  negotiation  had  protested  against 
the  proposed  agreement.  It  was  later  taken  out 
of  their  hands  entirely  and  passed  to  the  commit- 
tee appointed  by  the  Director  of  Operation  (Mr. 
Tyler).  Mr.  Hines,  in  his  testimony  before  the 
Senate  Committee  on  Interstate  Commerce,  Jan- 
uary 24,  1922,  emphasized  the  point  that  all  the 
rules  in  the  agreement  were  heartily  indorsed  and 
recommended  to  him  by  Mr.  Tyler,  an  experienced 
railroad  operating  official  who  "had  long  famili- 
arity with  labor  matters"  from  the  viewpoint  of 
management. 

No  single  act  of  Director  General  Hines  was 
subjected  to  more  criticism  than  the  execution  of 
the  national  agreements,  and  no  one  feature  of 
federal  control  caused  more  discussion  after  the 
termination  of  federal  control.  Because  of  the 
important  bearing  which  these  agreements  had 
upon  discipline  and  operating  costs,  the  outstand- 


186  AMERICAN  RAILROADS 

ing  features  of  that  applying  to  shop  crafts  will  be 
biiefly  summarized. 

The  agreement  prescribed  in  detail  the  classi- 
fication of  each  craft  and  each  grade  of  employee 
within  each  craft,  defined  what  each  employee 
might  do,  and,  conversely,  either  by  specific  state- 
ment or  by  inference,  what  he  might  not  do.  These 
rules,  classifications  and  definitions  constituted 
the  greater  part  of  the  agreement.  The  length  of 
the  basic  working  day  was  defined,  arbitrary  limits 
were  set  within  which  the  day's  work  should  be- 
gin, and  a  requirement  was  inserted  that  the 
starting  hour  should  be  the  same  for  all  shop 
craft  employees  in  any  one  locality.  An  e&iployee 
could  not  be  required  to  begin  work  before  7  a.  m., 
nor  later  than  8  a.  m.,  (on  the  day  shift),  except 
under  punitive  overtime.  The  punitive  rate  for 
overtime,  either  before  or  after  the  specified 
hours,  and  for  Sundays  and  holidays,  was  time- 
and-one-half.  Besides,  certain  arbitrary  minima 
were  prescribed  as  a  guarantee  to  an  employee 
held  or  called  for  overtime  work.  An  employee 
called  for  work  on  Sunday  or  a  holiday  could 
elect  to  remain  on  duty  all  day  and  get  pay  for 
1^/4  days  even  though  he  was  needed  but  a  few 
hours  or  less.  Employing  officials  were  required 
to  keep  a  record  of  overtime  made  by  each  em- 
ployee so  that  overtime  might  be  distributed 
equally  among  all  eligible  employees.  It  might 
be  assumed  that  the  purpose  of  this  record  was  to 
protect  the  employee  against  being  required  to 
work  an  excessive  amount  of  overtime,  but  the 
reverse  is  true.    The  record  was  designed  to  pro- 


AMERICAN  RAILROADS  187 

tect  an  employee  so  that  he  might  be  assigned  all 
of  the  overtime  to  which  he  was  entitled.  The 
punitive  rate  and  the  minimum  guarantees  for 
overtime,  Sunday  and  holiday  work,  were  so  at- 
tractive and  provided  such  a  premium  that  over- 
time was  sought  rather  than  avoided. 

The  agreement  outlined  the  method  of  adver- 
tising vacancies  or  new  positions  and  the  manner 
in  which  an  employee  could  "bid"  for  positions, 
providing  further  that  the  oldest  employee  in 
point  of  service  should  be  given  preference  if  suf- 
ficient ability  was  shown  hy  trial.  The  Adminis- 
tration's first  rule  on  this  subject  (in  Supple- 
ment 7  to  General  Order  27)  provided  that  "pro- 
motions shall  be  based  on  ability,  merit  and 
seniority;  ability  and  merit  being  sufficient, 
seniority  shall  prevail."  The  national  agreement 
rule  allowed  any  employee  to  exercise  his 
seniority  rights  in  demanding  a  trial  appointment, 
but  it  did  not  specify  who  was  to  be  the  judge 
as  to  whether  the  employee  had  "sufficient 
ability."  The  burden  of  proof  of  inabihty,  how- 
ever, rested  upon  the  management.  The  employee 
had  nothing  to  lose  by  "bidding  in  a  job"  beyond 
his  ability  and  outside  of  his  experience.  If,  after 
his  trial,  his  inability  was  so  obvious  as  to  be  be- 
yond question,  he  was  permitted  by  the  rules  to 
resume  his  former  position  without  prejudice  or 
loss  of  seniority  rights,  but  the  management  was 
put  at  serious  disadvantage  by  the  delay  in  fill- 
ing the  position  temporarily,  in  the  pecuniary  loss 
incident  to  the  fruitless  trial  emploj^ment  of  em- 
ployees  in   positions   for   which   they  were  not 


188  AMKltlLAN    UAILUUADS 

litti'd,  and  in  i-onospondinn-  dislurbance  in  other 
positions  niadi'  vacant  temporarily  while  the  trial 
employment  was  going  on. 

The  management  was  required  to  grant  an  em- 
ployee, upon  his  request,  "leave  of  absence  for  a 
limited  time,  w^ith  privilege  of  renewal,"  when 
the  requirements  of  the  service  would  permit,  but 
jiothing  was  said  as  to  who  should  Ijc  tlie  judge  of 
service  requirements.  Arbitrary  refusal  of  "a 
reasonable  amount  of  leave"  to  employees,  when 
they  could  be  spared,  was  designated  as  "an  im- 
proper practise"  and  "unjust  treatment." 

Employees  were  to  be  paid  off  during  regular 
working  hours,  and  if  the  i)ayday  should  fall  on  a 
holiday  or  a  day  on  which  the  shop  was  to  be 
closed  the  employees  were  to  be  paid  on  the  pre- 
ceding day. 

The  agreement  bound  the  management  to  per- 
mit none  but  mechanics  or  apprentices  to  do  me- 
chanics' work  (except  foremen  at  points  where  no 
mechanics  were  employed)  and  it  limited  the  em- 
ployment of  apprentices  so  that  their  number 
would  bear  a  definite  ratio  to  the  number  of 
mechanics.  It  further  limited  apprentices  to  boys 
between  10  and  21  years  at  the  Ix'ginning  of  their 
apprenticeship.  This  rule  put  a  stop  to  the  prac- 
tise of  some  roads  in  engaging  technical  school 
graduates  (over  21)  as  special  apprentices  with 
a  view  to  giving  them  a  broad  training  in  detail 
and  preparing  a  group  of  specially  trained  men 
from  which  to  select  minor  officials.  One  rule 
provided  that  in  the  selection  of  regular  appren- 
tices preference,  up  to  80%  of  the  number  em- 
ployed, was  to  be  given  to  sons  of  employees. 


AMERICAN   RAILROADS  189 

Filially,  the  agreement  provided  that  an  em- 
ployee who  had  been  in  the  service  for  30  days 
could  not  be  dismissed  for  incompetency ;  and  that 
an  applicant  for  employment  could  not  be  re- 
quired to  give  information  about  himself  or  his 
past  record  other  than  to  state  his  *' ability"  and 
to  give  the  address  of  relatives.  The  object  of 
this  restriction  was  to  prevent  the  management 
from  making  inquiries  from  former  employees  or 
others  concerning  the  man's  training  and  char- 
acter. The  address  of  relatives  was  permitted  so 
that  they  might  be  notified  in  case  of  accident. 

The  foregoing  is  a  summary  of  the  important 
rules  in  the  national  agreement  with  the  shop 
crafts.  The  document  contained  many  other  rules 
which  call  for  no  comment  here.  The  rules  in  the 
later  agreements  with  other  branches  of  the  ser- 
vice were  identical  in  text  or  similar  in  principle. 
All  of  these  agreements  were  objectionable  in  cer- 
tain important  particulars.  Many  of  the  rules 
were  essentially  a  form  of  wage  increases  or  de- 
signed to  ''furnish  more  jobs  for  more  men." 
The  classifications  of  work  and  the  limitations  on 
what  each  class  might  do  went  beyond  the  point 
of  legitimate  protection  against  exploitation  or  in- 
justice, and  tended  seriously  to  limit  output  and 
unfairly  to  increase  operating  costs.  Certain 
rules  required  the  helper  to  stand  idly  by  and 
watch  the  higher  priced  mechanic  perform  simple 
tasks  which  a  helper  could  do  as  well  while  the 
mechanic  was  engaged  on  something  else.  Nu- 
merous examples  might  be  cited  but  two  typical 


190  AMERICAN  RAILROADS 

cases  will  suffice.  A  helper  was  not  permitted  to 
unscrew  nuts  from  the  piston  rod  packing  gland 
on  one  side  of  the  locomotive  while  the  mechanic 
was  engaged  in  making  repairs  on  the  other  side. 
A  mechanic  could  not  disconnect  the  wiring  of  an 
electric  headlight,  although  he  could  easily  per- 
form the  simple  task  in  two  or  three  minutes, 
when  certain  repairs  were  required  on  the  front 
end  of  the  locomotive.  An  electrician  had  to  be 
called  to  attend  to  the  wiring,  and  the  mechanic 
and  his  helper  stood  by  until  the  wires  were  dis- 
connected. The  rigid  definitions  in  the  classifi- 
cations caused  a  multiplication  of  jobs  to  be  done 
by  several  men.  Under  former  conditions  a  smaller 
number  of  men  satisfactorily  performed  the  same 
amount  of  work  without  raising  any  question  as  to 
infringement  of  rights. 

The  rules  in  the  agreements  penalized  the  rail- 
roads heavily  and  unfairly  in  emergencies  which 
required  work  of  any  character  outside  of  regu- 
lar hours,  regular  assignments,  or  away  from 
headquarters.  Emergencies  are  unavoidable  in 
railroad  operation  and  emergency  work  is  a  regu- 
lar part  of  railroad  service.  In  an  emergency  in 
which  a  simple  task  could  be  performed  by  a  fore- 
man, the  rules  required  that  the  foreman  must 
call  a  mechanic  or  whatever  craftsman  was  en- 
titled to  the  job,  and  the  man  called  would  re- 
ceive pay  for  at  least  five  hours  in  addition  to  his 
regular  day's  pay,  even  though  the  emergency 
task  took  but  a  few  minutes. 

Under  former  conditions  it  was  the  practise  to 
employ  a  limited  number  of  ** handy  men"  who 
could  do  different  kinds  of  work  for  which  the 


AMERICAN  RAILROADS  191 

employment  of  regular  craftsmen  was  not  justi- 
fied by  the  volume  of  such  work.  While  the  rules 
did  not  specifically  prohibit  the  emplojonent  of 
such  * 'handy  men"  no  provision  was  made  for 
them,  and  the  rules  were  subsequently  interpreted 
by  the  Administration  as  preventing  their  em- 
ployment. 

The  national  agreements  also  operated  to  limit 
the  labor  supply  by  restrictive  definitions.  As  a 
single  example,  four  years'  practical  experience 
or  the  full  period  of  apprenticeship  was  specified 
as  the  minimum  experience  on  car  work  for  a  car- 
man. The  grade  of  work  upon  which  carmen  are 
employed  does  not  require  that  amount  of  train- 
ing, but  the  rule  prevented  the  management  from 
employing  a  competent  carpenter  as  a  car  re- 
pairer unless  he  had  had  the  specified  four  years 
of  training  in  car  repair  work.  The  object  of  the 
rule  was  to  limit  the  supply  of  labor  available  for 
that  class  of  work. 

The  rules  also  unreasonably  tied  the  hands  of 
the  employers  by  making  seniority  in  service  vir- 
tually the  sole  factor  in  promotion  or  in  the  se- 
lection of  men  for  new  positions.  The  railroads 
did  not  object  to  the  principle  of  seniority  if  mth 
it  went  some  recognition  of  merit  and  ability. 
Such  has  been  the  general  practise  for  years.  The 
principle  of  seniority  has  long  been  recognized, 
but  the  management  has  reserved  the  right  to 
have  something  to  say  in  the  appraisal  of  merit 
and  ability.  The  national  agreement  rule  which 
gave  the  senior  man  the  right  to  demand  a  trial  of 
30  days  in  any  position  to  which  his  seniority 


192  AMERICAN   RAILROADS 

rating  entitled  him,  even  when  he  was  obviously 
unfitted,  had  a  demoralizing  effect  upon  the  ser- 
vice. In  some  cases  two  or  three  men  would,  in 
turn,  insist  upon  their  month's  trial  in  a  specific 
vacancy,  and,  as  a  result,  the  vacancy  would  not 
be  permanently  filled  for  three  months  or  more. 
In  the  meantime  a  similar  experience  might  be 
going  on  in  the  positions  temporarily  vacated  by 
the  men  undergoing  trial. 

Impaired  discipline  and  a  general  lowering  of 
the  morale  of  the  service  followed  in  the  wake  of 
the  national  agreements.  At  the  very  beginning 
of  his  employment  a  mechanic  could  ignore  a  re- 
quest for  information  of  vital  importance  to  any 
prudent  employer.  The  employer  could  not  re- 
quire the  applicant  to  divulge  anything  concern- 
ing his  past  experience  or  his  personal  character, 
nor  to  show  "service  letters"  or  other  evidence  of 
fitness  for  the  position.  The  applicant  had  only 
to  state  that  he  had  had  at  least  four  years'  ex- 
perience as  a  mechanic.  He  was  not  required  to 
offer  any  supporting  evidence.  Then,  if  employed 
and  retained  in  the  service  for  30  days,  he  could 
rest  easy.  Rule  37  provided  that  after  that  length 
of  service  he  could  not  be  dismissed  for  incom- 
petency. This  and  other  rules  of  the  same  tenor 
required  the  railroads  to  retain  men  who  were 
useless  or  worse  than  useless.  As  a  natural  re- 
sult the  regulations  stripped  the  employing  of- 
ficer of  the  authority  which  legitimately  was  his 
and  without  which  he  could  not  satisfactorily  dis- 
charge his  responsibility  for  the  maintenance  of 
eflBciency  among  the  employees  of  his  department, 


AMERICAN   RAILROADS  19:j 

and  they  diminished  the  respect  with  which  he  was 
viewed  by  the  men. 

It  is  true  that  many  of  the  rules  in  the  national 
agreements  had  been  in  force  on  individual  rail- 
roads, particularly  in  the  South  and  the  South- 
west where,  because  of  the  limited  supply  of 
mechanics,  the  unions  could  successfully  insist 
upon  concessions  not  recognized  elsewhere.  But 
no  individual  road  had  all  of  the  rules.  The 
national  agreement  was  a  collection  of  the  most 
favorable  rules  on  all  roads,  plus  a  few  which 
were  original.  Many  of  the  existing  concessions 
were  the  result  of  bargaining  in  which  a  rule  was 
granted  as  a  substitute  for  higher  pay  or  as  a 
** trade"  for  something  else.  Very  few  of  the 
unfair  rules  were  in  eifect  outside  of  the  South 
and  Southwest. 

It  is  pertinent  to  note  here  that  all  of  the  na- 
tional agreements  were  entered  into  on  dates  sub- 
sequent to  May  20,  1919,  when  the  President  an- 
nounced that  the  roads  would  be  retunied  to  their 
owners  at  the  end  of  that  year,  and  three  out  of 
the  five  agreements  were  executed  by  the  Di- 
rector General  after  it  was  kno\m  by  the  Presi- 
dent's announcement  of  December  24,  1919,  that 
federal  control  would  terminate  on  March  1,  1920. 
The  railroad  executives,  therefore,  had  ground 
for  criticizing  the  Director  General  for  assuming- 
burdens  which  these  agreements  passed  on  to  the 
railroads  while  he  was  unwilling  at  the  same  time 
to  assume  the  responsibility  for  increasing  freight 
and  passenger  rates  so  as  to  meet  the  additional 
expenses.  The  statement  has  been  made  privately 
that  these  agreements  were  made  by  Mr.  Hines  to 


194  AMERICAN   RAILROADS 

redeem  a  pledge  given  by  Mr.  McAdoo  while  the 
war  was  in  progress  and  when  extra  inducements 
to  keep  the  locomotive  and  car  shops  at  their  max- 
imum output  were  justified.*  The  writer  cannot 
vouch  for  the  accuracy  of  the  statement,  but,  if 
true,  it  had  an  important  bearing  on  the  later 
action  of  Mr.  Hines.  The  early  negotiations  look- 
ing tow^ard  the  first  agreement  were  begun  dur- 
ing Mr.  McAdoo 's  regime  many  months  before 
the  document  was  finally  signed. 

Prior  to  the  events  which  led  up  to  the  passage 
of  the  Adamson  Act  late  in  1916,  the  relations  be- 
tween the  railroad  managements  and  their  em- 
ployees on  the  typical  railroad  were  reasonably 
hamionious.  It  is  true  that  these  intimate  rela- 
tions had  begun  to  dissolve  before  the  roads  were 
taken  by  the  Government.  But  during  the  26 
months  of  centralized  power  over  practically 
everj^thing  that  had  to  do  with  the  pay  envelop 
and  ^vith  w^orking  conditions,  the  control  of  local 
officers  over  their  employees  was  much  weakened. 
While  there  had  been  some  standardization  of 
wages  and  working  rules  in  certain  classes  of  ser- 
vice, the  policies  of  standardization  in  these  mat- 
ters were  carried  to  an  extreme  degree  during  the 
life  of  the  Railroad  Administration.  Rates  of  pay 
and    conditions    of    employment    in    nearly    all 

*At  Mr.  McAdoo 's  request  the  shopmen  worked  overtime  dur- 
ing the  first  11  months  of  1918  in  order  to  increase  the  shop 
output.  When  the  armistice  was  signed  the  hours  of  shopmen 
were  restored  to  the  agreed  8  hour  basis.  Wlien  working  more 
than  8  hours  during  the  war,  they  were  of  course  paid  overtime 
rates. 


1 


AMERICAN  RAILROADS  195 

classes  of  service  were  made  uniform  in  every 
part  of  the  country.  A  car  inspector  in  a  small 
town  in  Florida  received  the  same  rate  of  pay  as 
one  who  worked  in  Chicago  or  St.  Paul.  A  sta- 
tion clerk  in  a  small  inland  town  worked  under  the 
same  scale  as  one  who  had  to  assume  the  higher 
living  costs  of  Boston.  The  colored  women  who 
cleaned  cars  in  the  South  were  awarded  the  same 
wages  as  white  men  or  white  women  who  did  simi- 
lar work  in  New  York  or  Pittsburgh.  If  the  stand- 
ards adopted  were  reasonable  for  the  lower  living 
costs  of  the  South,  they  could  not  be  reasonable 
for  the  northern  sections  of  the  country,  particu- 
larly in  urban  communities  where  rents,  fuel,  and 
other  costs  of  living  were  much  higher.  If  the 
standards  were  reasonably  sufficient  for  northern 
cities  they  must  have  been  unreasonably  high  for 
the  southern  states.  Yet  an  inflexible  uniformity  in 
wage  rates  and  in  rules  affecting  hours  of  ser- 
vice or  other  terms  of  employment  was  prescribed 
for  nearly  every  class  of  service  regardless  of 
differences  in  going  rates,  in  rates  or  rules  for 
similar  employment  in  competing  industries,  in 
the  severity  of  work,  density  of  traffic,  relative 
degree  of  experience,  and  the  local  purchasing 
power  of  the  dollar. 

In  Chapter  XI,  which  deals  with  labor  policies 
during  the  year  1918,  reference  was  made  to  the 
Boards  of  Adjustment  which  were  created  during 
the  first  year  of  federal  control.  These  boards, 
three  in  number,  supplemented  the  work  of  the 
Board  of  Railroad  Wages  and  Working  Condi- 
tions, and  gave  effect  to  understandings  reached 
between  the  regional  directors  and  the  executives 


196  AMERICAN   RAILROADS 

of  the  unions,  under  which  bipartisan  boards  were 
to  be  established  to  adjust  controversies  as  to 
discipline,  interpretation  of  rules,  or  other  simi- 
lar grievances.  An  unfortunate  effect  of  the 
centralization  of  the  machinery  for  determining: 
wage  rates  and  rules  and  for  the  adjustment  of 
grievances  was  that  of  undermining  the  influ- 
ence of  the  oflScers  in  authority  locally  on  the  in- 
dividual roads,  and  thereby  of  impairing  dis- 
cipline. Throughout  the  entire  period  of  federal 
control  there  was  a  growing  tendency  on  the  part 
of  employees  to  disregard  their  immediate  su- 
periors and  the  federal  managers  also,  and  to  go 
to  Washington  with  all  sorts  of  grievances,  many 
of  them  trivial.  Though  a  substantial  portion  of 
these  complaints  were  decided  against  the  em- 
ployees, the  net  effect,  particularly  during  the  last 
14  months  of  federal  control,  was  to  reduce 
the  local  oflBcers  to  mere  figureheads  in  the  adjust- 
ment of  labor  differences.  According  to  the  rules 
of  procedure  each  case  had  first  to  be  presented 
to  the  local  officers,  but  generally  that  was  a  mere 
formality  incident  to  the  final  reference  of  the 
case  to  the  centralized  boards.  The  attitude  of 
the  employees  grew  to  be  that  their  real  friends 
and  the  real  power  were  in  Washington.  The 
local  oflScers  found  themselves  unable  to  adjust 
even  minor  differences  unless  the  employees' 
position  were  conceded  in  full,  and  on  the  part  of 
these  oflficers  there  grew  to  be  an  inclination  to 
let  the  central  administration  assume  the  re- 
sponsibility which  should  go  with  the  authority 
to  settle  controversies.  Under  such  circumstances 


AMERICAN  RAILROADS  197 

it  was  inevitable  that  discipline  should  be  im- 
paired and  that  the  morale  of  the  service  should 
suffer. 

During  the  year  1919  the  three  boards  of  ad- 
justment handed  down  3,100  decisions.  The  out- 
put of  board  No.  1  was  102  decisions  per  month, 
or  about  4  per  working  day.  In  addition  the  Di- 
vision of  Labor  made  decisions  in  over  600  cases 
affecting  employees  whose  cases  were  not  referred 
to  the  boards.  Then,  too,  there  were  the  numerous 
cases  investigated  and  adjusted  locally  by  the 
field  agents  of  the  Division  of  Labor.  The  1919 
annual  report  of  the  Director  of  Labor  contains 
a  list  of  over  300  cases  of  the  kind. 

An  examination  of  the  decisions  of  the  boards 
of  adjustment  indicates  a  wide  variation  in  the 
number  of  the  cases  presented  to  the  boards  by 
the  employees  or  the  managements  of  individual 
roads.  Some  roads  had  but  few  cases;  others 
had  many.  It  is  not  possible  without  an  intimate 
knowledge  of  the  facts  to  say  whether  in  the  first 
set  of  cases  the  freedom  from  dispute  was  the  re- 
sult of  exceptionally  harmonious  conditions  and 
disinclination  on  the  part  of  the  employees  to  ap- 
peal, or  whether  it  was  the  result  of  weakness  on 
the  part  of  the  management  in  avoiding  trouble 
by  conceding  practically  all  claims.  In  the  sec- 
ond set  it  is  not  possible  to  state  with  assurance 
whether  the  many  disputes  were  caused  by  an 
exceptional  lack  of  harmony  and  a  disposition  on 
the  part  of  employees  to  seek  for  cases  to  appeal. 


198  AMERICAN  RAILROADS 

or  to  a  narrow  or  unbending  attitude  on  the  part 
of  the  management  to  concede  nothing  of  a  con- 
troversial nature  and  to  play  safe  by  shifting  the 
responsibility  to  Washington. 


CHAPTER  XVIII 


FINANCIAL  RESULTS   OF   ENTIRE    PERIOD 
OF  FEDERAL  CONTROL 

THE  financial  results  of  the  year  1919  were 
much  more  unfavorable  than  those  of  1918, 
The  deficit  in  1918  was  approximately  $245,- 
000,000.  For  the  entire  period  of  federal  con- 
trol, January  1,  1918  to  March  1,  1920,  the  deficit 
was  at  least  $1,200,000,000.  This  was  the  estimate 
given  by  Director  General  Davis*  in  his  letter  of 
May  5,  1921,  to  the  Chairman  of  the  Committee  on 
Appropriations  of  the  House  of  Representatives. 
In  April,  1920,  shortly  after  the  close  of  federal 
control,  Director  General  Hines  stated  that  the 
deficit  would  be  about  $900,000,000.  This  figure, 
however,  failed  to  include  many  items  which 
Director  General  Davis  had  taken  into  account  in 
his  higher  estimate.  It  is  quite  probable  that  the 
final  sum  will  be  substantially  in  excess  of  Mr. 
Davis'  estimate  of  $1,200,000,000,  if  the  railroad 
companies  are  successful  in  obtaining  recognition 
of  even  a  small  part  of  the  claims  which  are  now 

*Mr,  Hines  was  succeeded  as  Director  General  on  May  15,  1920, 
by  John  Barton  Payne.  Mr.  Payne,  who  combined  his  duties  as 
Secretary  of  the  Interior  with  those  of  Director  General,  resigned 
when  the  Democratic  administration  went  out  in  March,  1921. 
As  his  successor,  President  Harding  appointed  James  C.  Davis, 
general  counsel  for  the  Railroad  Administration.  Prior  to  his 
connection  with  the  Railroad  Administration  Mr.  Davis  was 
general  solicitor  of  the  Chicago  &  Northwestern  Railway. 

199 


200  AMERICAN   RAILROADS 

pending.  In  his  letter  above  referred  to,  Mr. 
Davis  estimated  tliat  tiie  claims  for  uiidermain- 
tenance  alone  Avould  probably  run  from  $700,000,- 
000  to  $800,000,000  and  he  added  that  ''the  Rail- 
road Administration  records  fail  to  support 
claims  for  overmaintenance  suflScient  in  amount 
to  offset  these  amounts,  and  it  is  quite  evident  that 
some  allowance  must  be  made  on  account  of  under- 
maintenance."  Up  to  December  10,  1921,  final  set- 
tlements had  been  made  with  railroad  companies 
owning  44%  of  the  mileage  (excluding  ''short 
lines")  under  federal  control.  The  delay  in  set- 
tlement was  mainly  the  result  of  differences  in 
viewpoint  on  the  one  factor  of  maintenance,  and 
the  time  taken  to  prepare  the  vast  amount  of  ac- 
counting detail  required  by  the  Administration, 
or  furnished  by  the  railroad  companies  on  their 
own  initiative,  in  support  of  their  claims.  These 
settlements  included  compromises  on  claims  for 
undermaintenance,  but  that  item,  in  each  case, 
was  lumped  with  other  disputed  claims  and  no 
itemized  statements  which  furnish  an  indication  of 
the  relation  between  the  amounts  claimed  and  the 
amounts  allowed  for  undermaintenance  have  been 
made  public. 

Director  General  Davis,  in  a  report  to  the 
Senate,  under  date  of  December  10,  1921,  in  re- 
sponse to  a  resolution  asking  for  information  on 
the  status  of  the  accounts  of  the  Railroad  Admin- 
istration, with  particular  reference  to  claims, 
refused  to  itemize  the  details  of  the  final  settle- 
ments made  with  individual  carriers.  His 
refusal,  which  he  stated  had  the  approval  of  Presi- 
dent Harding,  was  based  on  the  ground  that  to 


AMERICAN  RAILROADS  201 

make  such  detail  public  would  embarrass  him  and 
delay  progress  in  the  settlement  of  pending  claims 
of  other  carriers.* 

The  details  of  the  estimated  deficit  of  $1,200,- 
000,000  are  not  available  to  the  writer,  but  some 
light  on  individual  items  may  be  had  from  the 
final  report  of  the  Division  of  Finance,  which 
gave  the  estimated  deficit  as  $900,478,757.  The 
difference  is  mainly  in  claims  of  various  kinds  not 
then  taken  into  account.  The  report  is  dated 
May  10,  1920,  and  gives  the  following  analysis  of 
the  Profit  and  Loss  account  as  of  February  29, 
1920,  when  the  roads  were  returned  to  private 
operation : 

Analysis  of  Profit  and  Loss  Account 
Estimated  excess  of  operating  expenses 
and  rentals  over  operating  revenues : 

Class  1  railroads $677,513,152 

Other  privately  owned  properties 43,011,129 

Inland   waterways 2,449,739 

Total $722,974,020 

Expense      of      central      and      regional 

organization 13,954,980 

Deficit,      American      Railway      Express 

Company 38,111,742 

Adjustment  of  materials  and  supplies..      85,204,618 

Net  interest  accruals 37,558,162 

Non-operating    income $  12,336,855 

Deductions  from  gross  income 10,118,034 

Miscelhinenus   profit   and   loss   items....        4,894,056 

Profit  and  loss  debit  balance 900,478,757 

Total $912,815,612  $912,815,612 

In  analyzing  the  causes  of  the  deficit  under  fed- 
eral control.  Director  General  Hines  in  his  final 

"Railway  Age,  Dec.  17,  1921,  p.  1213. 


202  AMERICAN  RAILROADS 

report  and  in  other  public  statements  called  at- 
tention to  certain  features  which  he  believed 
should  be  given  consideration.  These  features 
may  be  summarized  as  follows: 

(1)  It  was  not  practicable  to  increase  rates 
immediately  when  federal  control  began.  The 
general  increases  in  freight  and  passenger  rates 
were  made  effective  in  June,  1918.  The  first  gen- 
eral increase  in  wage  rates,  while  announced  in 
May,  1918,  was  made  retroactive  to  January  1. 

(2)  During  the  first  six  months  of  1919  there 
was  an  extraordinary  slump  in  traffic. 

(3)  The  coal  strike  in  November  and  Decem- 
ber, 1919,  seriously  affected  revenues,  and  operat- 
ing expenses  were  increased  by  the  higher  price 
of  fuel. 

Mr.  Hines  stated  that  the  net  operating  income 
of  1918  would  have  been  $494,000,000  greater  if  it 
had  been  practicable  to  increase  rates  on  January 
1,  1918,  in  the  same  degree  that  they  were  ad- 
vanced in  June.  This  additional  revenue  would 
have  brought  a  surplus  of  nearly  $250,000,000  in 

1918,  instead  of  a  deficit  of  an  approximately 
equal  amount. 

In  referring  to   the   disappointing   results   of 

1919,  Mr.  Hines  intimated  that  the  serious  decline 
in  business  during  the  first  half  of  the  year  ac- 
counted for  practically  all  of  tlie  deficit  of  $292,- 
500,000  in  that  period.  To  the  coal  strike  he  at- 
tributed the  deficit  of  $114,000,000  in  November 
and  December,  1919.  He  called  attention  also  to 
the  fact  that  the  Federal  Control  Act  required 


AMERICAN  RAILROADS  208 

the  Govenimeiit  to  assume  one-sixth  of  the  an- 
nual standard  return  as  the  rental  for  January 
and  February,  1920,  although  the  earning  capac- 
ity in  those  two  months  is  lower  than  the  aver- 
age for  the  year.  In  the  test  period  the  January 
and  February  proportions  of  the  yearly  railway 
operating  income  were  6.228%  and  5.257%  re- 
spectively, a  total  of  11.485%  for  the  two  months, 
whereas  the  ''pro  rata  for  each  fractional  part  of 
a  year  of  federal  control"  (required  by  the  Fed- 
eral Control  Act)  obligated  the  Administration  to 
pay  16.667%  of  the  annual  rentals.  This  method 
of  accounting  added  approximately  $49,000,000 
to  the  deficit  for  January  and  February,  1920. 

It  is  proper,  of  course,  to  give  due  consideration 
to  all  of  these  adverse  factors.  At  the  same  time 
it  must  be  remembered  that  scarcely  any  period 
in  railroad  operation  is  free  from  similar  factors 
which  affect  net  income.  The  so-called  "out- 
law strikes"  in  1920,  for  example,  account  for  the 
larger  part  of  the  deficit  during  the  first  six 
months  of  resumed  private  operation  while  the 
Government  guarantee  was  continued.  The  slump 
in  traffic  in  1921  accounts  in  greater  part  for  the 
disappointing  results  of  that  year,  and  the  exten- 
sive strikes  of  shopmen,  miners,  textile  workers 
and  others  in  1922  seriously  diminished  the  net 
revenue  of  that  period. 

Mr.  Hines  quite  properly  objected  to  the  deficit 
during  the  26  months  being  labeled  as  the  **cost" 
of  federal  operation.  As  was  pointed  out  in  re- 
viewing the  financial  results  of  the  first  period 
of  Government  control,  the  deficit  in  that  period 
could  have  been  avoided  if  the  increase  in  freight 


.;0+  AMERICAN   RAILROADS 

and  passenger  rates  had  been  greater.  The 
larger  deficit  of  the  second  period  could  similarly 
have  been  met  if  Mr.  Hines  had  considered  it 
expedient  to  initiate  further  rate  increases  dur- 
ing his  regime.  As  it  stands,  the  loss  is  borne  by 
the  public  treasury.  It  might  have  been  imposed 
in  the  first  place  upon  shippers  and  travelers  in 
higher  transportation  charges,  but  the  ultimate 
net  result  would  have  been  practically  the  same. 

If  private  operation  of  railroads  had  continued 
during  the  war,  it  is  probable  that  the  railroads 
would  have  had  to  assume  increases  in  expenses 
approximately  as  great  as  those  assumed  by  the 
Goveninieiit.  Althougli  it  is  probable  that  the 
restrictive  rules  of  the  national  agreements  would 
not  have  been  adopted,  a  wage  scale  lower  than 
that  of  the  Railroad  Administration  could  hardly 
have  been  maintained  without  intolerable  inter- 
ference with  the  movement  of  troops  and  war  sup- 
plies. It  is  true  that  the  railroads  were  turned 
back  with  diminished  earning  power;  but  it  is 
doubtful  whether  the  security  holders  would  have 
been  in  any  better  position  on  March  1,  1920,  if 
private  operation  had  continued  throughout  the 
war. 


CHAPTER  XIX 

HOW  FAR  THE  POLICIES  OF  UNIFICATION 
HAVE  PROVED  PERMANENT 

IT  is  not  practicable  to  make  a  satisfactory  ap- 
praisal of  the  economies  made  possible 
through  the  unification  policies  of  the  Kail- 
road  Administration.  These  economies  were  en- 
tirely obscured  or  were  offset  in  whole  or  in  part 
by  other  factors  which  had  an  overpowering  in- 
fluence upon  operating  expenses.  Among  the  ad- 
verse factors  the  two  of  greatest  effect  were  (1) 
the  necessity  during  the  first  year  of  giving  pri- 
mary attention  to  war-time  transportation  needs 
and  but  secondary  consideration  to  operating 
costs,  and  (2)  the  lower  efficiency  of  labor,  especi- 
ally among  the  employees  with  whom  the  national 
agreements  were  made.  Further  to  be  considered 
are  the  general  advances  in  all  wage  rates,  the 
general  adoption  of  the  eight-hour  day  in  all 
branches  of  the  service,  the  greater  costs  of  ma- 
terials, and  the  highly  unsettled  business  condi- 
tions. Unfortunately  there  is  no  known  test 
which  if  applied  to  the  operating  results  of  two 
periods  would  bring  definite  results  from  which 
the  single  factor  of  unification  of  facilities  and 
equipment  could  be  measured  with  any  approxi- 
mation of  accuracy.  The  estimates  which  appear 
in  the  annual  reports  of  the  Administration  are 

206 


'J06  AMERICAN  RAILROADS 

to  be  viewed  with  caution,  as  they  tell  but  part  of 
the  story.  Undoubtedly  the  common  use  of  ter- 
minals and  other  facilities  by  roads  which  are 
normally  in  competition  resulted  in  savings  in 
operating  costs.  These,  however,  under  the  non- 
competitive conditions  of  federal  control,  were  not 
as  important  as  was  the  increased  capacity  which 
such  consolidations  made  possible  when  the  rail- 
road machine  was  taxed  to  its  utmost  by  the  de- 
mands of  war  transportation.  During  the  year 
1918  the  unification  policies  and  the  centralized 
control,  backed  by  patriotic  cooperation  from  the 
whole  organization,  made  it  possible  to  produce  a 
volume  of  transportation  greater  than  that  pro- 
duced in  1917  (when  all  previous  records  had  been 
broken)  and  to  move  the  traffic  with  less  conges- 
tion and  delay.  It  should  be  noted,  however,  that 
in  1920,  particularly  during  the  second  half  of  the 
year,  when  the  railroads  were  again  under  private 
operation  and  when  the  policies  of  the  Railroad 
Administration  were  not  in  effect,  the  volume  of 
traffic  exceeded  even  that  of  1918,  and  it  was 
moved  with  a  freedom  from  congestion  and  delay 
that  compares  favorably  with  the  record  of  the 
best  months  of  the  federal  control  period. 

Since  the  termination  of  federal  control  many  of 
the  unification  policies  of  the  Railroad  Admin- 
istration have  been  materially  modified  or  have 
been  entirely  abandoned.  Many  were  applicable 
only  to  a  period  in  which  competition  in  service 
was  eliminated.  The  absence  of  competition  in 
service  during  federal  control  was  distateful  to 
the  shipping  and  the  traveling  public.     The  pros- 


I 


AMERICAN  RAILROADS  207 

pect  of  a  renewal  of  competition  under  the  initia- 
tive of  private  operation  was  one  of  the  most  im- 
portant reasons  for  the  unanimity  of  the  demand 
on  the  part  of  the  public  for  a  return  to  pre-war 
conditions  of  transportation  service. 

For  a  considerable  period  before  the  war, 
with  uniformity  of  rates  and  charges,  competi- 
tion had  been  confined  almost  entirely  to  service. 
The  soliciting  forces  of  competing  lines 
emphasized  the  superiority  of  their  terminals  or 
the  regularity  and  expedition  of  their  train 
service.  The  road  which  had  sho^vn  foresight  in 
locating  its  terminals  advantageously,  or  had  fore- 
gone a  part  of  its  dividends  over  a  series  of  years 
so  as  to  improve  its  facilities  and  equipment,  made 
the  most  of  these  favorable  factors  in  its  traffic- 
soliciting  efforts.  The  road  which  had  inade- 
quate or  less  accessible  terminals,  or  was  other- 
wise meagerly  equipped,  was  forced  to  excel  in 
other  features  of  service.  In  other  words,  the 
spur  of  competition  was  a  helpful  tonic  which  re- 
acted to  the  benefit  of  public  service. 

During  federal  control,  with  virtual  pooling  of 
facilities  wherever  practicable,  and  with  complete 
elimination  of  competition,  the  terminals  and 
other  facilities  of  the  prudent  road  were  used  in 
common  by  other  roads  which  had  been  unable 
or  unwilling  to  improve  their  facilities  and  equip- 
ment. Naturally,  with  the  return  of  competitive 
conditions  of  private  management  the  well-man- 
aged roads  were  disinclined  to  share  their  ad- 
vantages with  competitors.  The  year  1920  con- 
sequently witnessed  a  general  reversion  to  the 


208  AMERICAN   RAILROADS 

pre-war  status  and  the  abandonment  of  most  of 
the  innovations  of  the  Railroad  Administration. 
A  few  instances  of  unification  still  remain,  such  as 
the  joint  use  of  the  Pennsylvania  passenger  ter- 
minal in  New  York  by  the  Pennsylvania  and  the 
Baltimore  &  Ohio  Railroads. 

The  Transportation  Act  of  1920  empowers  the 
Interstate  Commerce  Commission  to  require  the 
joint  or  common  use  of  terminals,  including  main 
tracks  for  a  reasonable  distance  outside  of  the 
terminals,  when  such  a  requirement  is  believed  by 
the  Commission  to  be  in  the  interest  of  public 
service.  As  yet  the  Commission  has  not  formally 
exercised  that  power.  Probably  it  will  not  be  in- 
voked until  the  Commission  has  worked  out  its 
recommendations  for  the  voluntary  consolidations 
provided  for  in  the  Act. 

Joint  use  of  locomotives  has  not  been  continued, 
although  in  some  cases  during  the  heavy  traflBc 
period  of  1920  roads  with  surplus  power  rented 
locomotives  to  roads  which  were  short.  As  to 
freight  cars,  the  per  diem  rules  agreement,  the  car 
ser\'ice  rules,  and  the  interchange  code  of  the 
Master  Car  Builders'  Association  have  been  re- 
adopted  substantially  as  they  were  before  federal 
control.  The  per  diem  rate  for  the  use  of  freight 
cars  has  been  increased  from  60  cents  to  $1  and 
the  car  service  rules  have  been  amended  in  cer- 
tain particulars,  but  these  amendments  do  not 
affect  the  individuality  of  ownership  and  con- 
trol under  normal  conditions.  The  Interstate 
Commerce  Commission,  however,  has  been  given 
greater  power  (under  the  Transportation  Act)  to 


AMERICAN  RAILROADS  209 

control  the  distribution  of  cars  and  locomotives 
when  conditions  justify  the  exercise  of  that  power. 
A  Commission  on  Car  Ser\'ice  has  been  created 
as  a  branch  of  the  American  Railway  Association 
and  has  been  clothed  with  certain  administrative 
powers  of  policing  the  railroads  to  see  that  the 
car  service  rules  are  properly  observed. 

There  is  little  likelihood  that  the  Railroad  Ad- 
ministration standards  for  locomotives  and 
freight  cars  will  be  continued  as  such,  but  prob- 
ably there  will  hereafter  be  a  closer  approxima- 
tion to  uniformity  in  certain  features  of  design 
and  appurtenances.  The  individual  roads  are 
reverting  to  the  former  practise  of  designing  loco- 
motives and  freight  cars  to  suit  their  local  needs. 
The  ultimate  result  will  probably  be  to  reduce 
the  number  of  types  of  peculiarly  local  design, 
and  in  freight  cars  particularly  there  will  be 
further  progress  toward  standardization. 

All  of  the  accounting  short  cuts  used  by  the 
Railroad  Administration  in  dividing  joint 
revenues  and  expenses  have  been  abandoned. 
The  plan  for  standardizing  operating  statistics, 
however,  has  been  perpetuated  by  the  Interstate 
Commerce  Commission.  During  the  year  1920 
this  plan  was  continued  by  the  Commission  with- 
out change ;  but  effective  on  January  1,  1921,  cer- 
tain modifications  were  made  at  the  request  of  the 
railroad  executives  with  a  view  to  reducing  the 
clerical  work  required  by  the  original  plan. 

The  right  of  the  shipper  under  Section  15  of 
the  Act  to  Regulate   Commerce  to   specify  the 


210  AMERICAN   RAILROADS 

route  over  which  his  shipment  should  be  carried 
has  been  restored,  but  the  Interstate  Commerce 
Commission  is  authorized  by  the  Transportation 
Act  of  1920  to  order  changes  in  the  routing  of 
traffic  when  in  its  opinion  a  road  is  unable  so  to 
transport  the  traffic  offered  to  it  as  properly  to 
serve  the  public. 

Prior  to  the  date  of  the  termination  of  federal 
control  the  railroad  companies  took  steps  to  re- 
organize the  "off  line"  soliciting  agencies  which 
had  been  abolished  by  Director  General  McAdoo, 
and  on  March  1,  1920,  or  shortly  thereafter, 
practically  all  of  these  agencies  were  again  func- 
tioning. In  discussing  this  subject  in  an  earlier 
chapter  attention  was  drawn  to  the  fact  that  the 
public  did  not  take  kindly  to  this  abridgment  in 
service. 

A  few  of  the  consolidated  ticket  offices  have 
been  continued.  In  some  cities  certain  of  the 
roads  have  withdrawn,  but  the  joint  offices  are 
being  used  by  the  remaining  roads.  In  Chicago, 
for  example,  three  roads  withdrew  while  nineteen 
remained.  In  most  cases  where  the  offices  were 
broken  up,  or  where  some  of  the  roads  withdrew, 
the  action  was  taken  because  certain  of  the  roads 
believed  that  the  joint  offices  worked  against  their 
indi\4dual  interests  under  competitive  conditions. 
Undoubtedly  the  consolidated  ticket  office  tended 
to  throw  a  greater  number  of  passengers  to  the 
strong  lines  and  correspondingly  to  reduce  the 
passenger  traffic  of  the  weaker  roads. 

The  policy  of  reducing  or  eliminating  duplicate 
passenger  train   service,   such   as   that  between 


AMERICAN  RAILROADS  211 

Chicago,  St.  Louis,  Omaha,  and  the  Twin  Cities 
was  quickly  abandoned.  With  the  return  to 
former  conditions  of  competition  it  was  but  nat- 
ural that  the  service  should  be  restored  sub- 
stantiall}"  on  a  pre-war  basis.* 

The  efforts  of  the  Railroad  Administration  to 
centralize  the  purchasing  of  equipment,  rails,  ties 
and  other  materials  and  supplies  never  produced 
satisfactory  results.  The  Administration  itself 
abridged  the  scope  of  the  plan  in  1919,  and  it  died 
at  the  end  of  federal  control. 

Advertising  for  traffic  purposes  was  entirely 
discontinued  during  the  first  year  of  federal  con- 
trol, but  was  resumed  to  a  limited  extent  in  1919 
■with  a  view  of  stimulating  passenger  travel.  In 
1920,  under  private  operation,  advertising  was 
resumed  on  the  former  scale. 

The  permit  system  for  controlling  traffic  at  the 
source,  a  plan  which  had  much  to  do  with  the  pre- 
vention of  congestion  during  federal  control,  has 
been  continued  in  part,  particularly  in  the  field  of 
export  traffic.  Shipments  for  export  are  not  ac- 
cepted unless  the  shipper  can  give  assurance  that 
ship  space  will  be  available  at  seaboard.  The 
plan  works  well  in  preventing  an  accumulation 
of  cars  at  water  terminals. 

On  the  whole  it  may  be  said  that  nearly  all  of 
the  innovations  of  the  Railroad  Administration 

•During  the  year  1919  the  Railroad  Administration  restored  a 
large  part  of  the  passenger  train  mileage  taken  off  in  1918.  Out 
of  the  67,290,482  train-miles  (per  annum)  discontinued  in  1918, 
the  Administration  restored  11,461,758  (per  annum)  up  to  June 
30,  1919.  The  reestablished  service  included  some  of  the  limited 
trains,  such  as  the  Broadway  Limited  of  the  Pennsylvania  Rail- 
road between  New  York  and  Chicago. 


212  AMERICAN  RAILROADS 

were  effective  only  under  the  non-competitive  con- 
ditions of  federal  control.  Most  of  these  innova- 
tions brought  satisfactory  results  while  the  war 
was  in  progress,  especially  in  increasing  traflBc 
capacity.  Most  of  them  worked  less  satisfactorily 
in  1919  when  the  return  of  the  roads  to  competi- 
tive conditions  was  in  sight.  Under  the  free  play 
of  competition  the  principles  of  unification  have  a 
much  restricted  application  and  in  the  majority 
of  cases  they  are  not  regarded  with  favor  either 
by  the  railroads  or  the  public. 


CHAPTER  XX 

POLITICAL  INFLUENCE  DURING 
FEDERAL  CONTROL 

IN  concluding  this  review  of  the  two  years  and 
two  months  of  federal  control  of  railroads  it 
is  proper  to  suggest  several  questions  w^hich 
usually  have  a  prominent  place  in  any  discussion 
of  nationalization  as  a  possible  remedy  of  the 
railroad  problem. 

The  first  has  to  do  with  labor  relations:  did 
Government  management  show  a  tendency  to  make 
undue  concessions  to  labor  for  political  or  par- 
tisan ends?  Here  it  is  difficult  to  distinguish  be- 
tween policies  and  actions  dictated  solely  by  emer- 
gency needs  and  those  which  in  some  degree  may 
have  been  inspired  by  political  motives.  The  Ad- 
ministration was  committed  by  President  Wilson 
to  a  definite  policy  of  keeping  labor  contented. 
Director  General  McAdoo  was  confronted  with 
an  extremely  serious  situation.  The  relations 
between  the  railroad  managers  and  their  em- 
ployees were  badly  strained.  This  tension  had 
begun  to  manifest  itself  in  an  extreme  way  prior 
to  the  passage  of  the  Adamson  Act  (in  1916). 
The  ill-feeling  then  engendered  had  not  materi- 
ally improved  up  to  the  time  when  federal  control 
began,  and  conditions  at  that  time  were  most  dif- 
ficult.      Railroad  labor  was  then  generally  re- 

213 


214  AMERICAN  RAILROADS 

garded  as  underpaid.  The  railroad  managers 
were  having  trouble  in  holding  their  employees 
against  the  higher  wage  attractions  elsewhere  and 
stated  that  they  could  not  pay  enough  to  retain 
their  workers.  Various  strike  threats  were  in 
the  air  and  the  situation  generally  was  one  of  ex- 
treme tension. 

Under  the  President's  policy  of  striving  to 
keep  labor  contented  it  was  necessary  to  grant 
wage  rates  and  to  concede  working  rules  which 
under  other  conditions  might  be  regarded  as  un- 
reasonably favorable  to  organized  labor.  The 
main  purpose  of  this  sympathetic  attitude  of  the 
Administration  toward  the  aspirations  of  the 
leaders  of  railroad  labor  was  undoubtedly  to 
prevent  disputes  which  would  adversely  af- 
fect transportation  service  during  the  war 
period  and  thus  bring  discredit  upon  federal 
management.  At  the  same  time  it  was  perfectly 
natural  that  the  Administration,  with  an  eye  to 
its  perpetuation,  would  on  the  one  hand  do  every- 
thing that  properly  could  be  done  to  foster 
friendly  relations  with  labor,  and  on  the  other 
hand  would  avoid  doing  anything  which  would  an- 
tagonize the  labor  vote.  It  is  true  that  such  criti- 
cism as  may  fairly  be  made  of  the  Director  Gen- 
eral's policies  apply  to  actions  taken  after  the 
armistice  was  signed,  yet  on  the  whole,  it  is  the 
writer's  opinion  that  political  motives  did  not 
have  a  dominating  influence  in  labor  relations. 
While  there  is  much  to  support  the  view  of  many 
observers  that  the  Administration  did  truckle  to 
labor,  there  is  little  evidence  that  this  policy  was 
designed  to  serve  political  or  partisan  ends. 


AMERICAN  RAILROADS  215 

The  second  question  is  this:  was  Government 
management  used  to  promote  the  political  for- 
tunes of  the  party  or  a  party  leader?  Here  again 
there  is  difficulty  in  differentiating  between  mo- 
tives. The  goal  of  the  Administration  was  to  sur- 
pass all  records  in  transportation  efficiency.  A 
successful  result  would  be  to  add  directly  to  the 
effectiveness  of  our  participation  in  the  world 
war  and  to  shorten  its  duration.  Indirectly  too, 
it  would  add  to  the  prestige  of  the  political  party 
and  the  leaders  then  in  power.  While  there  were 
indications  here  and  there  that  the  Administra- 
tion was  not  unmindful  of  the  political  fortunes 
of  the  party  or  its  leaders,  these  considerations 
were  kept  in  the  background  and  had  little  or  no 
effect  on  general  policies.  As  a  sidelight  on  this 
question,  it  is  pertinent  to  call  attention  to  the 
fact  that  political  considerations  had  nothing 
whatever  to  do  with  the  selection  of  the  officers  or 
employees  of  the  Administration.  The  men  were 
chosen  solely  on  the  ground  of  fitness.  No  ques- 
tions were  asked  as  to  political  affiliations.  It  was 
peculiarly  a  case  where  the  office  sought  the  man. 

The  third  question  has  to  do  with  the  published 
statements  pertaining  to  transportation  achieve- 
ments and  financial  results.  Was  there  any  ten- 
dency to  color  the  operating  statistics  or  to  adjust 
or  manipulate  the  figures  in  order  to  improve  the 
showing!  Was  there  any  tendency  to  refrain 
from  facing  the  real  financial  situation  or  to  put 
off  the  day  of  reckoning? 

So  far  as  the  statistics  of  physical  operation 
were  concerned,  the  Administration's  policy  was 


216  AMERICAN   RAILROADS 

one  of  publishing  and  distributing  the  complete 
figures  month  by  month  in  much  greater  detail 
than  had  ever  before  been  attempted.  Nothing 
was  held  back.  The  same  is  true  as  to  the  state- 
ments of  financial  results,  with  the  one  exception 
that  during  the  closing  months  of  the  federal  con- 
trol period  there  was  a  disposition  to  minimize 
the  extent  of  the  actual  deficit  by  ignoring  the 
element  of  undermaintenance  and  other  claims 
against  the  Government.  During  Mr.  McAdoo's 
term  of  office  there  was  a  disposition  to  magnify 
the  extent  of  savings  made  possible  through  uni- 
fied control,  and  in  the  latter  part  of  Mr.  Hines' 
term  of  office  there  was  a  tendency  to  overdo  in 
''explaining  away"  certain  unfavorable  features. 
It  was  natural  enough  that  the  Administration 
should  desire  to  place  the  situation  before  the 
public  in  the  best  possible  light.  At  times  the 
coloring  was  carried  to  extremes,  but  there  can- 
not be  the  slightest  suspicion  of  deliberate  manip- 
ulation with  intent  to  deceive.* 

The  fourth  question  bears  upon  rates  and  ser- 
vice. Did  the  railroad  administration  adjust  or 
manipulate  rates  under  pressure  from  individuals 
and  localities,  or  improperly  discriminate  in  rates 
or  service  against  individuals  or  localities?  It 
may  be  stated  with  assurance  that  no  such  im- 
proper discrimination  was  practised.  Exception 
might  be  taken  here  and  there  in  specific  cases,  as, 
for  example,  to  the  rate  adjustments  which  fa- 

*"The  Railroad  Administration  has  erred  more  frequently  in 
over-statement  than  in  under-achievement. ' '  The  American 
Eailroad  Problem,  I.  L.  Sharfman,  p.  144. 


AMERICAN  RAILROADS  217 

vored  the  Southern  ports  at  the  expense  of  North 
Atlantic  ports;  but  the  consensus  of  opinion  of 
disinterested  traffic  experts  is  that  the  Admin- 
istration's action  in  that  and  in  other  cases  was 
justified  from  the  national  viewpoint.  On  the 
whole,  it  is  the  writer's  opinion  that  an  honest 
effort  was  made  in  all  adjustments  and  changes 
to  treat  individuals  and  localities  fairly  without 
regard  to  political  effect. 

Finally,  we  may  ask  ourselves  whether  the  recent 
experiment  in  federal  control  affords  an  adequate 
test  of  the  desirability  of  a  permanent  policy  of 
public  ownership  and  management.  The  answer 
is  plainly  in  the  negative.  The  results  in  1918 
were  favorable.  In  1919  they  were  unfavorable. 
They  were  favorable  in  1918  because  at  that  time 
we  were  actively  engaged  in  war,  every  influence 
of  patriotism  supported  the  Railroad  Adminis- 
tration, and  the  organization  was  held  at  concert 
pitch  by  the  critical  military  needs.  The  unfavor- 
able results  in  1919  may  be  attributed  in  greater 
part  to  the  pronounced  reaction  from  war-time 
strain,  to  the  serious  decline  in  traffic,  and  to  the 
disintegration  of  the  organization  in  a  too  pro- 
longed closing  period.  No  one  should  question 
the  expediency  of  the  Government's  action  in  tak- 
ing the  railroads  in  the  emergency.  The  centrali- 
zation of  power  and  the  more  effective  coordina- 
tion with  other  branches  of  the  Government  in 
the  crisis  made  possible  results  in  the  effective 
utilization  of  equipment  and  facilities  which  would 
have  been  much  more  difficult  under  private  man- 
agement.    But  it  is  not  proper  to  treat  that  part 


218  AMERICAN   RAILROADS 

of  the  period  as  the  test  of  what  might  be  expected 
under  normal  conditions.  As  regards  the  un- 
favorable year  1919,  it  would  be  as  unfair  to  make 
that  a  test  of  Government  operation  as  it  would  be 
to  take  the  present  period  of  subnormal  traflBc 
and  disturbed  economic  conditions  as  the  final 
test  of  private  management. 

Those  who  advocate  nationalization  and  look 
upon  the  results  of  both  years  as  favorable  to 
Government  operation  must  concede  that  they  are 
to  be  credited  to  railroad  men  who  rose  to  the 
emergency.  The  proponents  of  nationalization 
who  are  disappointed  in  the  results  of  the  two 
years  attribute  the  failures  to  the  fact  that  the 
real  management  during  the  greater  part  of  fed- 
eral control  was  in  the  hands  of  men  who  were 
brought  up  under  private  management  and  who, 
therefore  (from  the  vie\vpoint  of  nationaliza- 
tion), could  not  or  would  not  avail  themselves  of 
the  advantages  of  unification. 

It  is  plain,  therefore,  that  nothing  definite  can 
be  proved  from  the  results  of  1918-19.  A  real 
test  of  Government  operation  is  possible  only  if 
carried  on  over  a  longer  period — one  in  which 
business  conditions  are  normal  and  in  wiiich  politi- 
cal expediency  would  have  normal  play.  The 
period  under  re\dew  was  so  abnormal  that  the  re- 
sults are  valueless  as  guides  to  what  might  be 
expected  from  similar  control  or  complete  Gov- 
ernment ownership  when  normal  conditions  re- 
turn. As  it  is  not  the  purpose  of  this  book  to 
discuss  the  broad  question  of  railway  nationaliza- 
tion, the  subject  will  not  be  pursued  further  here. 


CHAPTER  XXI 


THE  TRANSPORTATION  ACT  OF  1920 

THE  main  purpose  of  this  book  is  to  record 
the  reasons  for  and  the  results  of  federal 
control  of  railroads  during  the  war  period. 
With  that  record,  however,  should  go  a  brief  re- 
view of  the  more  important  and  outstanding  fea- 
tures of  the  reconstruction  period. 

Federal  control  of  railroads  terminated  at 
12:01  a.  m.,  on  ^larch  1,  1920.  The  return  of 
the  roads  to  private  management  was  accom- 
plished under  the  terms  of  the  Transportation 
Act.  That  Act  was  the  final  result  of  more 
than  one  year's  active  consideration  by  Congress 
of  the  whole  railroad  problem.  The  hearings  be- 
fore the  appropriate  committees  began  early  in 
1919,  but  the  Act  was  not  approved  by  the  Presi- 
dent until  February  28,  1920,  a  day  before  it 
became  effective.*  Many  plans  were  proposed 
for  adoption  by  Congress,  and  the  discussion 
before  the  committees  and  on  the  floors  of  Con- 
gress attracted  wide  public  attention. 

"The  Cummins  bill  was  reported  to  the  Senate  on  October  23 
and  was  passed  on  December  20.  The  Esch  bill  was  reported 
to  the  House  on  November  10  and  was  passed  on  November  17. 
The  conference  bill  was  reported  on  February  18,  passed  by  the 
House  on  February  21,  and  by  the  Senate  on  February  23. 
President  Wilson  approved  the  Act  on  February  28- 

219 


220  AMERICAN   RAILROADS 

The  bills  first  passed  by  the  two  branches  of 
Congress  differed  in  many  important  respects, 
but  these  differences  were  finally  harmonized  in 
joint  conference.  Strong  opposition  to  the  joint 
bill  was  voiced  in  Congress,  particularly  by  the 
representatives  of  labor  and  by  the  proponents  of 
nationalization.  The  former  advocated  the  Plumb 
Plan  which  contemplated  Government  ownership 
combined  with  operation  by  a  joint  board  com- 
posed of  representatives  of  railroad  manage- 
ment, the  employees  and  the  public.  The  latter 
vigorously  opposed  a  return  to  private  operation 
in  any  form  and  urged  Government  o^^^lership  as 
the  ultimate  solution. 

In  the  effort  to  defeat  the  joint  bill,  great  pres- 
sure, in  threats  of  political  punishment,  was 
exerted  by  the  labor  unions  upon  individual  sena- 
tors and  congressmen.  When  the  bill  was  finally 
passed  by  both  branches  of  Congress,  that  pres- 
sure was  brought  to  bear  upon  President  Wilson. 
But  public  opinion,  in  its  reaction  against 
Government  rule  during  the  war  period,  over- 
whelmingly insisted  upon  the  termination  of 
federal  operation  of  railroads,  unmistakably 
opposed  any  form  of  Government  ownership,  and 
demanded  an  early  return  of  the  railroads  to  their 
owners  for  private  operation  with  its  free  play  of 
competition.  In  these  circumstances  Congress 
and  the  President  responded  to  public  opinion 
at  large,  and  the  Transportation  Act  became  law 
over  the  protests  of  organized  labor  and  other 
advocates  of  nationalization. 

The  Act  amended  in  some  respects  nearly  every 
section  of  the  existing  Act  to  Regulate  Commerce. 


AMERICAN  RAILROADS  221 

It  gave  the  Interstate  Commerce  Commission 
greater  control  over  rates  and  service,  routing  of 
freight,  extensions,  abandonments  and  consolida- 
tions of  lines,  and  joint  use  of  terminals  and 
equipment.  It  also  vested  the  Commission  mth 
greater  powers  in  determining  the  divisions  of 
through  rates  on  interline  traffic  between  the  car- 
riers participating  in  the  haul. 

It  is  not  necessary  here  to  go  into  the  details 
of  these  amendments.*  This  review  will  be  con- 
fined to  the  four  outstanding  features,  viz. : 

(1)  The  provisions  for  the  orderly  transition 
from  federal  to  private  control; 

(2)  The  new  rule  of  rate-making; 

(3)  The  provisions  for  railroad  consolida- 
tions ; 

(4)  The  creation  of  the  Railroad  Labor  Board. 

During  the  26  months  of  federal  control  there 
were  serious  dislocations  in  the  normal  flow  of 
traffic  and  much  disturbance  in  operating  and  fi- 
nancial features  from  the  viewpoint  of  the  indi- 
vidual companies.  Serious  doubts  were  enter- 
tained whether  many  carriers  could  successfully 
stand  the  shock  of  the  change,  and  there  were 
fears  that  general  financial  embarrassment  might 
follow  the  cessation  of  payment  of  the  Government 
rentals  which  the  companies  had  received  during 
federal  control.  To  avoid  disaster  of  that  kind 
the  Act  provided  for  a  six  months'  transition 
period  (commonly  referred  to  as  the  guarantee 
period)  in  which  the  properties  would  be  operated 

*An  excellent  review  will  be  found  in  "  Eailroads  and  Govern- 
ment," by  Professor   Frank  Haigh   Dixon,   1922, 


222  AMERICAN   RAILROADS 

by  the  companies  with  their  individual  organiza- 
tions under  a  guarantee  that  the  Government 
would  make  up  the  difference  between  what  the 
railroads  individually  earned  during  the  six 
months,  and  one-half  of  the  average  annual  net 
railway  operating  income  earned  by  the  individual 
railroads  during  the  three  years  ended  June  30, 
1917.  In  other  words,  the  railroads  were  assured 
of  net  railway  operating  income  equal  to  the  rent- 
als paid  by  the  Government  during  the  period  of 
federal  control.  During  the  six  months  the  rail- 
roads would  be  relieved  of  immediate  financial 
worries,  they  could  adjust  themselves  to  changed 
conditions,  and  the  Interstate  Commerce  Com- 
mission and  the  newly  created  Railroad  Labor 
Board  could  proceed  in  an  orderly  manner  to  re- 
vise the  rate  and  wage  scales  in  the  light  of  post- 
war conditions.  The  situation  is  clearly  stated 
by  Professor  Dixon: 

"It  was  evident  that  the  problem  of  the  immediate 
future  could  not  be  solved  by  a  mere  withdrawal  of  the 
Government  from  the  scene  of  operations.  One  glance 
at  the  income  account  would  have  disposed  of  any  such 
supposition.  Some  provision  must  be  made  by  which 
earnings  should  cover  expenses,  if  financial  disaster 
was  to  be  warded  off,  and,  more  than  this,  the  con- 
fidence of  the  financial  community  must  be  restored  if 
credit  was  to  be  available  to  all  for  the  pressing  capital 
requirements  that  had  perforce  been  laid  one  side  dur- 
ing the  war  and  its  aftermath.  On  the  operating  side 
there  was  much  to  be  done  to  transform  a  nationally 
conceived  organization  into  efficient  individual  oper- 
ating units.  Labor  organization  and  morale  had  to 
be  reconstructed.     Equipment  scattered  to  the  far  ends 


AMERICAN  RAILROADS  223 

of  the  country  was  to  be  returned  to  its  owners.  If 
the  statements  of  officials  are  to  be  accepted,  there  was 
an  enormous  amount  of  maintenance  work  to  be  done, 
both  on  road  and  equipment,  before  facilities  could  be 
restored  to  pre-war  standard.  These  difficulties  of  the 
transition  stage  were  responsible  for  the  granting  of 
the  'guarantee  period.'  "* 

The  new  rule  for  rate-making  may  be  con- 
sidered as  the  heart  of  the  Transportation  Act. 
Its  adoption  marked  a  new  era  in  the  relations 
between  the  carriers  and  the  Government.  The 
fundamental  difference  between  the  new  law  and 
that  which  it  superseded  is  that  the  Transporta- 
tion Act  couples  some  degree  of  responsibility 
mth  the  authority  to  control.  All  previous  laws, 
essentially  corrective  and  punitive,  gave  the  regu- 
lating bodies  authority  to  control,  but  charged 
them  with  practically  no  responsibility  for  the  ef- 
fects which  such  regulation  might  have  upon  the 
carriers.  Designed  to  correct  and  to  punish,  it 
mattered  little  if  under  the  operation  of  the  law, 
earning  power  was  dangerously  lowered.  The 
burden  of  proof  was  placed  entirely  upon  the 
carriers. 

The  new  law  constructively  recognizes  the  fun- 
damental principle  that  the  power  to  correct  and 
punish  a  railroad  must  be  exercised  also  to  protect 
the  railroad  as  well  as  the  public.  All  of  the 
powers  in  earlier  laws  to  insure  reasonable  rates, 
and  to  prevent  discrimination  or  abuse  of  mana- 
gerial power,  are  retained  in  the  1920  legislation, 
and  the  control  over  service  and  finance  is  much 
strengthened.     But  coupled  with  that  extended 

*  Sailroads  and  Government,  F.  H.  Dixon,  p.  213. 


224  AMERICAN   RAILROADS 

authority  and  power  is  the  mandate  that  the  rate 
scales  shall  be  established  so  that,  **  under  honest, 
efficient  and  economical  operation,"  the  carriers 
as  a  whole  or  by  groups  may  "as  nearly  as  may 
be"  earn  a  reasonable  rate  of  return  upon  the 
value  of  the  properties  held  for  and  used  in  the 
service  of  transportation.  While  this  principle 
had  on  several  occasions  been  recognized  by  court 
decisions  it  has  now  for  the  first  time  been  affirma- 
tively written  into  a  federal  statute. 

The  Transportation  Act  recognizes  further  that 
the  carriers  should  be  enabled  to  earn  a  reason- 
able rate  of  return  so  that  they  may  enlarge  their 
facilities,  ''in  order  to  provide  the  people  of  the 
United  States  with  adequate  transportation." 
This  is  in  the  interest  of  the  shipper  and  the 
traveler  as  well  as  in  the  interest  of  the  carriers, 
as  the  public  is  as  much  concerned  in  the  adequacy 
of  service  as  it  is  in  the  rates  charged  for  that 
service. 

So  much  for  the  spirit  of  the  new  rule  of  rate- 
making.  Its  text  needs  but  a  brief  summary  here. 
The  important  details  are: 

(a)  Rates  are  to  be  established  from  the  view- 
point of  the  carriers  as  a  whole  or  as  a  whole  by 
territorial  groups  to  be  designated  by  the  Com- 
mission, but  the  Commission  is  given  reasonable 
latitude  to  modify  or  adjust  any  particular  rate 
which  it  may  find  to  be  unjust  or  unreasonable, 
and  to  prescribe  different  rates  for  different  sec- 
tions of  the  country. 

(b)  The  rate  structure  as  a  whole,  for  the  rail- 
roads as  a  whole  or  by  territorial  groups,  is  to 


AMERICAN  RAILROADS  225 

be  established  so  as  to  yield  an  aggregate  annual 
net  railway  operating  income  equal,  as  nearly  as 
may  be,  to  a  fair  return  upon  the  aggregate  value 
of  the  railway  properties  held  for  and  used  in  the 
service  of  transportation.  A  fair  return,  for  the 
first  two  years,  or  until  March  1,  1922,  was  set 
at  5V2%,  but  the  Commission,  in  its  discretion, 
might  add  thereto  a  sum  not  exceeding  one-half  of 
one  per  cent  on  such  aggregate  value  to  make  pro- 
vision in  whole  or  in  part  for  improvements, 
betterments  or  equipment  chargeable  to  capital 
account.*  In  determining  the  value  of  the  proper- 
ties the  Commission  is  permitted  to  utilize  the  re- 
sults, ''in  so  far  as  deemed  available,"  of  the  work 
under  way  since  1914  by  its  Bureau  of  Valuation, 
and  "shall  give  due  consideration  to  all  the  ele- 
ments of  value  recognized  by  the  law  of  the  land 
for  rate-making  purposes."  To  the  property  in- 
vestment account,  i.  e.,  the  *'book  value,"  the 
Commission  is  to  give  "only  that  consideration 
which  under  such  law  it  is  entitled  to  for  rate- 
making  purposes." 

(c)  In  establishing  rates  to  yield  the  specified 
return  on  property  value  the  Commission  is  re- 
quired to  take  into  account  the  honesty,  efficiency 
and  economy  of  operation,  and  to  allow  for  reason- 
able expenditures  for  maintenance  of  way,  struc- 
tures and  equipment. 

(d)  If  a  carrier  earns  in  excess  of  6%  on  prop- 
erty value  during  the  first  two  years  of  operation 

*The  rate  increases  of  11^20  were  designed  to  yield  net  railway 
operating  income  equivalent  to  the  full  6%  on  property  value. 
In  1922  the  Commission,  in  exercising  its  discretion  under  the 
Act,  reduced  the  rate  of  return  to  5%%. 


220  AMERICAN    RAILROADS 

under  the  Act,  one-half  of  such  excess  shall  be 
placed  in  a  reserve  fund,  and  one-half  shall  be  paid 
to  the  Commission  for  the  purpose  of  establish- 
ing and  maintaining  a  general  railroad  contingent 
fund.  The  railroad's  reserve  fund  may  be  drawn 
upon  only  to  pay  dividends  (at  regular  rates)  or 
interest  charges  and  rentals  in  years  when  it  fails 
to  earn  6%,  but  when  the  fund  has  grown  to  a  sum 
equal  to  5%  on  its  property  value,  the  excess  in 
the  fund  over  that  sum  may  be  used  by  the  carrier 
for  any  lawful  purpose.  This  new  principle, 
commonly  referred  to  as  the  ''recapture  clause," 
is  designed  to  ease  the  problem  of  the  Commis- 
sion in  fixing  competitive  rates  for  the  strong  and 
the  weak  roads,  so  that  a  basis  which  wuU  enable 
the  weak  to  survive  vdW  not  unreasonably  fatten 
the  strong.  As  is  stated  in  the  Act:  "...  .it  is  im- 
possible. . .  .to  establish  uniform  rates  upon  com- 
petitive traffic  which  will  adequately  sustain  the 
carriers  which  are  engaged  in  such  traffic  and 
which  are  indispensable  to  the  communities  to 
wliich  they  render  transportation,  without  en- 
abling some  of  the  carriers  to  receive  a  net  railway 
operating  income  substantially  and  unreasonably 
in  excess  of  a  fair  return."  Hence  the  provision 
under  which  the  Government  recaptures  one-half 
of  the  excess  and  ties  a  string  to  the  remaining 
half  retained  by  the  carrier.*  The  general  rail- 
road contingency  fund,  to  be  made  up  of  recap- 
tured excess  earnings,  is  to  be  administered  by  the 
Commission  in  its  discretion  as  a  revolving  fund, 
citlier  in  making  loans  to  carriers  to  meet  expen- 

•This  clause  ia  vigorously  opposed  by  a  few  of  the  prosperous 
roads  and  its  constitutionality  is  likely  to  be  tested  in  the  courts. 


AMERICAN  RAILROADS  227 

ditures  for  capital  account  or  to  refund  maturing 
securities  originally  issued  for  capital  account, 
or  in  purchasing  transportation  equipment  or  fa- 
cilities to  be  leased  to  carriers.  A  carrier  apply- 
ing for  a  loan  must  satisfy  the  Commission  of  its 
ability  to  repay  the  loan  in  the  specified  time,  and 
must  pay  an  interest  rate  of  6%. 

(f)  In  determining  the  percentage  which  the 
net  railway  operating  income  shall  bear  to  the 
property  values  of  the  carriers  as  a  whole  or  by 
territorial  groups  the  Commission  ''shall  give  due 
consideration  among  other  things  to  the  transpor- 
tation needs  of  the  country  and  the  necessity. . .  . 
of  enlarging  such  facilities  in  order  to  provide  the 
people  of  the  United  States  with  adequate  trans- 
portation." This  clause  couples  responsibility 
for  results  with  authority  to  regulate. 

Closely  connected  with  the  rate-making  rule  is 
the  section  of  the  Act  providing  for  railroad  con- 
solidations. It  mil  be  noted  that  the  statutory 
rate  of  return  specified  by  the  rate-making  section 
applies  only  to  the  roads  as  a  whole  or  by  terri- 
torial groups.  It  does  not  apply  to  individual 
carriers.  If  a  carrier  earns  in  excess  of  6%  it 
must  share  such  excess  equally  with  the  Govern- 
ment. If  it  earns  less  than  6%  it  has  no  romody.* 
There  is  a  current  misconception  that  each  rail- 
road is  guaranteed  a  statutory  rate  of  return.  As 
a  matter  of  fact  there  is  no  guarantee  either  for 
the  roads  individually  or  collectively.    The  Com- 

•Tlie  "fair  rate  of  icturii"  \v;is  roilnre<l  to  •^%'~r  l)y  tlic 
Commission    in    1922. 


228  AMERICAN   RAILROADS 

mission  is  required  merely  to  establish  rates  so 
that  the  return  for  the  roads,  as  a  whole  or  in  ter- 
ritorial groups,  as  nearly  as  may  he,  shall  equal 
the  prescribed  statutory  rate.  If  in  the  exercise 
of  its  judgment  the  Commission  errs  on  the  side 
of  inadequacy  in  rates,  or  if  other  conditions,  such 
as  a  business  depression  or  a  strike,  adversely 
affects  earnings  and  the  net  income  is  less  than 
the  statutory  rate  of  return,  the  railroads  are 
given  no  means  of  collecting  the  deficiency.  Nor 
is  the  rate  scale  to  take  account  of  the  needs  of 
individual  carriers.  It  is  to  be  based  on  the  re- 
quirements of  the  roads  as  a  whole  or  in  territorial 
groups.  Even  if  the  rates  yield  6%  on  the  aggre- 
gate value  of  all  of  the  carriers  in  a  group,  some 
of  them  will  earn  more  than  6%  and  some  will 
earn  less,  depending  upon  their  individual  earning 
power  and  its  relation  to  their  property  values. 
It  is  impracticable  to  establish  competitive  rates 
to  meet  the  income  requirements  of  a  single  road 
in  competitive  territory.  The  rates  must  be  uni- 
form for  all  competitive  traffic.  Under  any  uni- 
form scale  of  rates  there  will  be  wide  differences 
in  the  earning  power  of  the  weak  and  the  strong 
roads. 

The  problem  of  the  weak  road  has  always  been 
a  difficult  one  in  rate  regulation.  Kecognizing  the 
fact  that  the  new  rate-making  rule  cannot  operate 
successfully  so  long  as  there  are  substantial  dif- 
ferences in  the  earning  power  of  the  two  groups  of 
carriers,  commonly  referred  to  as  the  strong  and 
the  weak,  Congress,  in  framing  the  Transporta- 
tion Act,  laid  down  the  principle,  (in  addition  to 


AMERICAN  RAILROADS  229 

the  recapture  of  a  part  of  excess  income)  that  dis- 
parity in  earning  power  shall  be  removed  by  a 
process  of  merging  the  weak  vdih  the  strong.  The 
law  aims  toward  the  ultimate  merging  of  the 
railroads,  so  that  instead  of  a  large  nmnber  of 
separately  owiied  and  operated  properties  vary- 
ing "widely  in  mileage  and  in  earning  power,  there 
shall  emerge  a  small  number  of  systems  of  fairly 
equal  size  and  financial  strength. 

AVhen  the  two  branches  of  Congress  were  con- 
sidering the  whole  subject  in  1919  the  Senate 
bill  provided  that  such  consolidations  should  be 
compulsory.  The  House  bill,  however,  contained 
no  reference  to  the  subject.  In  joint  conference 
the  view  of  the  Senate  prevailed,  but  in  a  modi- 
fied form.  The  Act  as  finally  passed  calls  for 
consohdations,  but  they  are  to  be  made  volun- 
tarily. The  compulsory  feature  was  eliminated. 
Section  5,  paragraphs  4  and  5,  of  the  Act  reads  as 
follows : 

"The  Commission  shall  as  soon  as  practicable  pre- 
pare and  adopt  a  plan  for  the  consolidation  of  the  rail- 
way properties  of  the  continental  United  States  into 
a  limited  number  of  systems.  In  the  division  of  such 
railways  into  such  systems  under  such  plan,  compe- 
tition shall  be  preserved  as  fully  as  possible  and 
wherever  practicable  the  existing  routes  and  channels 
of  trade  and  commerce  shall  be  maintained.  Subject 
to  the  foregoing  requirements,  the  several  systems  shall 
be  so  arranged  that  the  cost  of  transportation  as  be- 
tween competitive  systems  and  as  related  to  the  values 
of  the  properties  through  which  the  service  is  rendered 
shall  be  the  same,  so  far  as  practicable,  so  that  these 
systems  can  employ  uniform  rates  in  the  movement  of 
competitive  traffic  and  under  efficient  management  earn 


330  AMERICAN  RAILROADS 

substantially  the  same  rate  of  return  upon  the  value 
of  their  respective  railway  properties. 

"When  the  Commission  has  agreed  upon  a  tenta- 
tive plan,  it  shall  fjive  the  same  due  publicity  and  upon 
reasonable  notice,  including  notice  to  the  Governor  of 
each  IState,  shall  hear  all  persons  who  may  file  or  present 
objections  thereto.  The  Commission  is  authorized  to 
prescribe  a  procedure  for  such  hearings  and  to  fix  a 
time  for  bringing  them  to  a  close.  After  the  hearings 
are  at  an  ond,  the  Commission  shall  adopt  a  plan  for 
such  consolidation  and  publish  the  same;  but  it  may 
at  any  time  thereafter,  upon  its  own  motion  or  upon 
application,  reopen  the  subject  for  such  changes  or 
modifications  as  in  its  judgment  will  promote  the  public 
interest." 

As  has  already  been  noted  the  Commission  is 
without  power  to  enforce  its  recommendations, 
although  its  approval  of  voluntary  consolidations 
on  any  scale,  large  or  small,  must  be  secured  be- 
fore they  may  become  effective.  Under  the  law 
the  Commission  must  rely  entirely  upon  the  pres- 
sure of  })ublic  opinion  to  support  any  afiirmative 
proposals  looking  toward  systematic  consolida- 
tions. Inasmuch,  however,  as  the  principle  of  con- 
solidation is  vital  to  the  permanent  success  of  the 
new  policy  of  rate  regulation,  it  is  probable  that 
strong  public  pressure  will  be  brought  to  bear 
upon  those  who  for  selfish  reasons  may  hold  out 
against  the  adoption  of  a  plan  which  appears  to 
be  in  broad  public  interest.  It  is  probable  that 
a  test  case  will  be  submitted  to  the  courts  before 
any  comprehensive  plan  can  be  carried  out,  and 
that  additional  legislation  will  be  found  advisable 
or  necessary.* 

•Chapter  XXIV  describes  what  haa  been  done  by  the  Com- 
mission in  connection  with  consolidations  up  to  July,  1922. 


AMERICAN  RAILROADS  281 

Nearly  all  of  the  several  plans  considered  by 
Congress  prior  to  the  passage  of  the  Transporta- 
tion Act  had  some  provision  to  govern  the  rela- 
tions between  railroad  management  and  em- 
ployees. The  close  connection  between  railroad 
wages  and  railroad  rates  mider  the  new  rule  of 
rate-making,  invested  the  former  Avith  a  public 
interest  nearly  as  great  as  that  in  rates.  The 
pubhc  is  vitally  interested  also  in  the  prevention 
of  labor  disputes  which  may  cause  interruptions 
of  traffic.  The  strike  threat  of  the  train  service 
brotherhoods  in  1916  (withdrawn  only  after  Con- 
gress and  the  President  had  capitulated  in  pass- 
ing and  approving  the  Adamson  Act),  the  serious 
threats  of  strikes  late  in  1917  Avhen  the  nation 
was  engaged  in  war,  and  the  several  strikes  of  the 
shop  crafts  (^vithout  the  sanction  of  their  na- 
tional officers)  during  the  summer  of  1919,  led 
to  an  insistent  demand  that  federal  legislation 
should  guard  against  further  contingencies  of  the 
kind  by  investing  a  Government  tribunal  with 
power  to  determine  wages  and  to  establish  work- 
ing rules.  A  proposal  which  had  general  support 
was  that  the  power  be  lodged  with  the  Interstate 
Commerce  Commission  so  that  the  body  which  es- 
tablished rates  could  also  control  the  major  ele- 
ment in  operating  expenses,  a  highly  important 
factor  under  the  new  rule  of  rate-making.  The 
view  of  those  who  opposed  that  plan,  because  it 
might  overburden  the  Commission,  prevailed,  and 
the  final  bill  provided  for  a  separate  and  indepen- 
dent tribunal  to  be  known  as  the  Railroad  Labor 
Board. 


2Q2  AxMERICAN   RAILROADS 

Mention  should  be  made  of  the  fact  that  the  Cum- 
mins bill,  passed  by  the  Senate,  contained  drastic 
provisions  which  were  aimed  to  prohibit  railroad 
employees  from  striking.  The  possibility  of 
compulsory  arbitration  aroused  intense  opposi- 
tion from  organized  labor  and  the  compulsory  ar- 
bitration feature  disappeared  in  joint  conference. 

The  Railroad  Labor  Board  consists  of  nine  mem- 
bers, three  each  representing  the  management, 
the  employees  and  the  general  public.  All  are  ap- 
pointed by  the  President,  subject  to  consent  of 
the  Senate,  but  the  President  is  required  to  select 
his  appointees  for  management  and  labor  from  a 
list  of  nominees  submitted  to  him  by  the  respec- 
tive parties. 

The  primary  functions  of  the  Board  are  to  de- 
termine wages  and  working  conditions,  and  to  de- 
cide controversies  involving  grievances  or  the 
interpretation  of  rules  when  such  controversies 
cannot  be  adjusted  by  Boards  of  Adjustment 
which  may  be  created  under  the  Act.  In  deter- 
mining the  justness  and  reasonableness  of  wages 
the  Board  is  required,  so  far  as  practicable,  to 
take  into  consideration  among  other  relevant  cir- 
cumstances : 

(1)  The  scale  of  wages  paid  for  similar  kinds 
of  work  in  other  industries; 

(2)  The  relation  between  wages  and  the  cost  of 
living ; 

(3)  The  hazards  of  employment; 

(4)  The  training  and  skill  required; 


AMERICAN  RAILROADS  238 

(5)  The  degree  of  responsibility; 

(6)  The  character  and  regularity  of  employ- 
ment; 

(7)  Inequalities  of  increases  in  wages  or  of 
treatment,  the  result  of  previous  wage  orders 
and  adjustments. 

The  Board  has  broad  poAvers  to  require  the 
appearance  of  witnesses  and  the  production  of 
books  or  other  documents  and  records,  but  it  has 
no  power  to  enforce  its  decisions.  All  that  it  can 
do  is  to  make  public  its  findings  and  rely  upon 
public  opinion  to  enforce  their  observance. 

As  organizations  auxiliary  to  the  Labor  Board, 
and  subordinate  to  it  in  that  the  findings  of  these 
auxiliary  bodies  are  subject  to  review  by  the 
Labor  Board  on  appeal,  the  Transportation  Act 
provides  for  the  creation  of  Railroad  Boards  of 
Adjustment  to  be  established  by  agreement  be- 
tween any  carrier,  group  of  carriers,  or  the  car- 
riers as  a  whole,  and  any  employees  of  carriers 
or  organization  or  group  thereof.  These  Boards 
of  Adjustment  are  to  deal  with  disputes  involving 
grievances,  rules  and  working  conditions  which 
the  individual  carriers  are  unable  to  settle  direct 
with  their  employees.  If  these  Boards  of  Ad- 
justment fail  in  their  efforts  to  adjust  the  dis- 
pute, it  may  be  carried  on  appeal  by  either  party 
to  the  Railroad  Labor  Board.  The  object  of  ad- 
justment boards  is  to  relieve  the  Labor  Board  of 
the  vast  amount  of  detail  connected  with  the 
many  minor  disputes  which  inevitably  arise  in 
railroad  operation,  so  that  the  Board  may  have 
more  time  to  devote  to  the  larger  matters  of 


234  AiMERICAN  RAILROADS 

wages  and  general  working  rules.    The  Act  pro- 
vides  (Section  301) : 

' '  It  shall  be  the  dutj'  of  all  carriers  and  their  officers, 
employees  and  agents  to  exert  every  reasonable  effort 
and  adopt  every  available  means  to  avoid  any  interrup- 
tion to  the  operation  of  any  carrier  growing  out  of  any 
dispute  between  the  carrier  and  the  employees  or  sub- 
ordinate officials  thereof.  All  such  disputes  shall  be 
considered  and,  if  possible,  decided  in  conference  be- 
tween representatives  designated  and  authorized  so  to 
confer  by  the  carriers,  or  the  employees  or  subordinate 
officials  thereof,  directly  interested  in  the  dispute.  If 
any  dispute  is  not  decided  in  such  conference,  it  shall 
be  referred  by  the  parties  thereto  to  the  board  which 
under  the  provisions  of  this  title  is  authorized  to  hear 
and  decide  such  dispute." 

A  decision  of  the  Labor  Board  shall  not  be  valid 
unless  it  is  concurred  in  by  at  least  5  of  the  9 
members  and  unless  one  of  the  5  is  a  representa- 
tive of  the  public.  The  central  offices  of  the  Board 
are  required  to  be  in  Chicago,  but  the  Board  may, 
whenever  it  deems  necessary,  meet  at  such  other 
place  as  it  may  determine. 

No  provision  is  made  in  the  Act  for  the  coordi- 
nation of  the  functions  of  the  Labor  Board  and 
the  Literstate  Commerce  Commission.  Each  acts 
independently  of  the  other  except  in  so  far  as 
they  may  voluntarily  confer  on  matters  of  joint 
interest.  It  is  hardly  necessary  to  mention  that 
there  is  a  close  relation  between  railroad  wages 
and  railroad  rates  and  that  there  should  be  active 
cooperation  between  the  two  bodies.  Kates  are 
now  based  on  an  adaptation  of  the  ''cost  of  ser- 
vice" principle.  Once  a  rate  scale  is  established 
by  the  Commission  its  equilibrium  mav  be  de- 


AMERICAN  RAILROADS  235 

stroyed  by  any  general  advance  or  reduction  in 
wage  scales.  The  only  reference  to  rates  in  the 
Labor  Board  section  of  the  Act  is  that  which  au- 
thorizes the  Board  to  suspend  any  wage  settle- 
ment made  locally  between  management  and  em- 
ployees if  the  Board  ''is  of  the  opinion  that  the 
decision  involves  such  an  increase  in  wages  or 
salaries  as  mil  be  likely  to  necessitate  a  substan- 
tial readjustment  of  the  rates  of  any  carrier.  The 
Labor  Board  shall  hear  any  decision  so  suspended 
and  as  soon  as  practicable  and  mth  due  diligence 
decide  to  affirm  or  modify  such  suspended  de- 
cision." Inasmuch  as  the  rate-making  section 
contemplates  that  the  rate  scale  is  to  be  estab- 
lished for  the  carriers  as  a  whole  or  in  a  territo- 
rial group,  it  is  not  clear  how  a  wage  adjustment 
by  a  single  carrier  can  be  made  the  basis  for  an 
increase  in  the  rate  scale  of  that  single  carrier. 

The  foregoing  summary  of  the  Transportation 
Act  is  intended  merely  to  outline  its  principal 
features.  The  action  of  the  Interstate  Commerce 
Commission  and  the  Railroad  Labor  Board,  in 
compliance  with  the  requirements  of  the  Act,  dur- 
ing 1920,  1921,  and  the  first  half  of  1922,  are  sum- 
marized in  the  following  chapters. 


CHAPTER  XXII 

RAILROAD  EVENTS  IN  1920 

NO  single  year  in  railroad  history  has  con- 
tained so  many  unusual  features  as  1920. 
Within  it  were  embraced  the  concluding 
two  months  of  federal  control,  the  six  months  of 
the  guarantee  period  when  the  railroads  were  op- 
erated by  their  o\vners  under  a  continuance  of  the 
guarantee  of  pre-war  net  railway  operating  in- 
come, and  four  months  of  private  operation  when 
the  railroads  were  entirely  **on  their  o^vn."  The 
year  ushered  in  a  new  rule  of  rate-making  under 
the  Transportation  Act,  and  a  new  era  in  labor 
relations  with  the  Railroad  Labor  Board  domi- 
nant in  wage-fixing  and  the  formulation  of  work- 
ing rules. 

Before  the  Labor  Board  was  fully  organized 
and  working  effectively  there  were  several  serious 
strikes  among  the  more  radical  workers  who 
would  not  wait  for  the  Board  to  decide  the  pend- 
ing wage  demands.  These  strikes  were  not  au- 
thorized by  the  executive  officers  of  the  unions  af- 
fected, and  the  striking  employees,  who  were 
''outlawed"  by  their  unions,  formed  a  new  but 
short-lived  union  of  their  own.  The  year  mt- 
nessed  also  exceedingly  large  increases  in  freight 
and  passenger  rates,  and  in  railroad  wages. 
Coupled  with  these  conditions  there  was  a  sudden 

286 


AMERICAN  RAILROADS  237 

and  unprecedented  growth  in  traffic  which  se- 
riously taxed  the  railroads'  carrying  capacity  and 
yielded  gross  revenues  greater  than  had  ever 
before  been  earned  in  a  single  year. 

In  fact,  the  year  1920  was  one  of  superlatives. 
It  had  the  greatest  traffic,  the  largest  operating 
revenues,  the  heaviest  operating  expenses,  and 
the  smallest  net  railway  operating  income  since 
the  Interstate  Commerce  Commission  (in  1888) 
began  to  compile  railroad  statistics  on  a  national 
scale. 

The  transition  from  federal  to  private  control 
was  accomplished  with  but  little  shock  or  con- 
fusion. The  continuation  of  the  Government  guar- 
antee of  pre-war  net  income  gave  the  railroads 
time  to  put  their  financial  affairs  in  order  and  to 
reorganize  their  forces  for  individual  operation 
under  competitive  conditions.  The  tendency  was 
to  discontinue  most  of  the  unification  and  other 
measures  adopted  by  the  United  States  Railroad 
Administration,  and  to  restore  the  general  order 
of  things  as  they  had  existed  in  1916.  Traffic- 
soliciting  agencies,  advertising,  and  other  activi- 
ties of  a  competitive  nature  were  resumed  on  an 
effective  scale.  So  far  as  it  was  practicable  to  do 
so  the  railroads  entered  upon  maintenance  pro- 
grams which  were  designed  to  make  up  a  part  of 
the  work  deferred  in  1917  and  during  federal 
control.* 

*Under  the  terms  of  the  Transportation  Act  the  carriers,  dur- 
ing the  6  months'  guarantee  period  were  restricted  to  expendi- 
tures no  greater  than  those  of  the  test  period  equated  for  the 
higher  wage  and  material  costs  of  1920.  Expenditures  in  ex- 
cess of  that  maximum  were  not  to  be  taken  into  account  in  de- 
termining the  amount  of  the  guarantee  to  be  paid  by  the  Govern- 
ment. 


288  AMERICAN   RAILROADS 

In  one  important  respect  other  than  in  physical 
condition  the  railroads  which  were  turned  back  to 
their  o^v^lers  on  March  1,  1920,  were  not  the  same 
railroads  which  were  taken  by  the  Government  on 
January  1,  1918.  The  corporate  officers  found  a 
profound  change  in  the  morale  of  the  working 
forces.  This  subject  has  already  been  dealt  with 
in  Chapter  XVII.  Further  discussion  here  is  un- 
necessary. 

Within  a  week  or  two  after  the  passage  of  the 
Transportation  Act  with  its  new  rule  of  rate- 
making  the  Interstate  Commerce  Commission  in- 
vited the  railroads  to  an  informal  conference  on 
rate  increases.  It  will  be  recalled  that  the  need 
for  substantial  advances  in  rates  to  meet  the 
greatly  increased  operating  costs  had  been  recog- 
nized during  the  last  year  of  federal  control,  and 
that  the  railroad  executives,  looking  forward  to 
the  return  of  the  roads  (as  announced  by  the 
President),  had  appealed  to  the  Director  General 
to  exercise  his  authority  and  initiate  rate  in- 
creases which  would  place  the  railroads  on  a  self- 
sustaining  basis  when  private  operation  would  be 
resumed.  The  Director  General,  however,  de- 
cided in  October  that  no  further  rate  increases 
would  be  made  during  the  period  of  federal  con- 
trol, believing  it  to  be  in  public  interest  to  incur  a 
deficit  from  operation  to  be  met  from  general 
taxation  rather  than  run  the  risk  of  disturbing 
commodity  prices  by  a  further  inflation  of  trans- 
portation charges.*     He  held  to  the  view  that 

•See  Chapter  XIV. 


AMERICAN  RAILROADS  239 

the  needs  of  the  railroads  after  the  termination 
of  federal  control  should  be  decided  by  the  Inter- 
state Commerce  Commission  under  whatever  plan 
Congress  might  adopt  in  the  meantime,  but  in  or- 
der that  the  railroads  might  be  prepared  to 
present  their  case  intelligently  to  the  Commission 
when  private  control  was  restored,  he  placed 
his  traffic  organization  at  the  disposal  of  the 
corporate  officers  to  assist  in  preparing  the  rail- 
roads' petitions. 

When  the  Commission  entered  upon  its  new 
duties,  as  defined  by  the  Transportation  Act,  the 
railroads  had  already  made  studies  from  which 
their  revenue  needs  were  estimated,  and  they 
were  therefore  prepared  to  respond  to  the  Com- 
mission's invitation  to  a  conference  on  the  sub- 
ject. The  first  point  to  be  decided  was  that  of  ter- 
ritorial groupings.  The  railroads  suggested  that 
the  rate  scales  should  be  established  for  but  three 
districts,  corresponding  to  existing  freight  classi- 
fication territories,  viz.,  Easteni,  Southern  and 
Western.  This  recommendation  was  adopted  by 
the  Commission  with  one  modification.  The  Wes- 
tern district  was  reduced  by  the  exclusion  of  the 
roads  west  of  Colorado  common  points  and  those 
roads  were  designated  as  the  Mountain-Pacific 
group. 

In  the  formal  hearings  which  followed  the  in- 
formal conference  the  railroads  presented  their 
petitions  for  rate  increases  which,  based  on  the 
volume  of  traffic  during  the  year  ended  October 
31,  1919,  and  the  operating  expenses  of  March  1, 
1920,  would  yield  6%  on  the  property  investment 


240  AMERICAN  RAILROADS 

accounts  of  each  group  of  carriers.  Before  the 
Coiumission  had  reached  a  conclusion  the  Labor 
Board  announced  general  wage  advances,  effective 
from  May  1,  and  the  Commission  then  invited  the 
railroads  to  submit  revised  estimates  which  would 
take  the  higher  wage  rates  into  account. 

The  property  investment  account,  or  ''book 
value",  was  used  by  the  railroads  as  their  prop- 
erty value  because  the  data  then  available  in  the 
Commission's  Bureau  of  Valuation  were  not  sufl5- 
ciently  complete  to  be  employed  as  the  basis  for 
the  roads  as  a  w^hole.  In  the  small  number  of 
cases  in  which  tentative  values  had  been  found 
for  individual  systems  those  values  corresponded 
closely  to  the  property  investment  accounts. 

In  its  decision  of  July  29,  1920,  the  Commission 
authorized  substantially  what  the  Eastern  district 
roads  had  asked,  but  withheld  a  part  of  the  rate 
increases  requested  by  the  Southern  and  Western 
carriers.  Passenger  rates  were  advanced  uni- 
formly (about  20%)  throughout  the  countr5^  Par- 
lor and  sleeping  car  fares  were  also  advanced  uni- 
formly but  in  greater  degree.  Freight  rates,  with 
certain  exceptions,  were  increased  40%  in  the 
East,  25%  in  the  South,  35%  in  the  West,  and 
25%  in  Mountain-Pacific  territory. 

The  cut  in  the  requested  increases  in  the  South 
and  West  was  the  result  of  writing  do^vn  the 
property  investment  account  as  the  basis  for 
property  value.  The  railroads  as  a  whole  had 
asked  for  rate  increases  which  would  yield  6% 
on  the  property  investment  account  of  slightly 
more  than  $20,000,000,000.     Without  indicating 


AMERICAN  RAILROADS  241 

clearly  how  it  arrived  at  a  lower  valuation,  the 
Commission  assumed  a  prox:)erty  value  of  $18,900,- 
000,000,  or  about  $1,100,000,000  less  than  the  book 
value  presented  by  the  carriers.  This  reduction 
was  equivalent  to  reducing  the  estimated  return 
from  6%  to  5.7%  on  the  property  investment  ac- 
count. The  railroads  had  asked  for  rates  which 
would  yield  net  railway  operating  income  of  ap- 
proximately $1,200,000,000.  The  Commission's 
award  was  intended  to  yield  about  $1,134,000,000. 
The  new  scale  of  rates  became  effective  on  Au- 
gust 28,  1920,  three  days  before  the  expiration  of 
the  guarantee  period  and  the  complete  resumption 
of  private  control. 

The  newly  created  Railroad  Labor  Board  did 
not  start  out  auspiciously.  Shortly  after  the 
Transportation  Act  was  passed,  the  President  in- 
vited the  railroad  executives  and  the  railroad 
labor  unions  to  nominate  several  candidates.  The 
nominations  were  sent  in  promptly,  but  there  was 
much  delay  in  making  the  appointments,  '\^^len 
finally  presented  to  the  Senate  they  were  quickly 
approved,  on  April  15,  a  month  and  a  half  after 
the  passage  of  the  Act. 

In  the  meantime  there  was  acute  unrest  and 
agitation  among  the  employees  whose  wage  de- 
mands, presented  to  the  Director  General  during 
the  previous  summer,  had  been  held  in  abeyance 
to  be  acted  upon  by  the  board  to  be  created  under 
the  then  pending  legislation.  Early  in  March  the 
President  attempted  to  settle  the  controversy  by 
bringing  together  the  railroad  executives  and  the 
labor  leaders,  but  nothing  came  of  the  effort. 


242  AMERICAN   RAILROADS 

The  Labor  Board  had  hardly  been  organized 
and  begun  its  hearings  when  much  pressure  was 
exerted  upon  it  to  hasten  its  decision.  Two  of 
the  public  members  of  the  board  had  had  no 
previous  experience  in  railroad  wage  matters  and 
the  organization  had  not  had  time  to  find  itself. 
Considering  the  magnitude  and  ramifications  of 
the  demands  from  practically  every  class  of  em- 
ployee, the  important  bearing  the  decision  would 
have  upon  freight  and  passenger  rates,  and  the 
efforts  to  stampede  the  board  into  a  hasty  deci- 
sion, the  difiiculties  of  the  task  may  be  compre- 
hended. While  the  hearings  were  under  way, 
and  when  the  board  was  in  executive  session, 
there  were  numerous  "outlaw"  strikes  among 
yard  employees.  These  hampered  the  flow  of 
traffic  and  caused  serious  congestions. 

The  decision  of  the  Labor  Board,  which  was  an- 
nounced on  July  20,  1920,  and  made  retroactive 
to  May  1,  carried  with  it  an  annual  increase  of 
about  22%  for  all  classified  employees.  It  had  the 
effect  of  adding  more  than  $600,000,000  per  year 
to  the  railroad  payroll.  These  increases  were  an- 
nounced while  the  Interstate  Commerce  Commis- 
sion was  considering  the  petitions  of  the  carriers 
for  rate  advances,  and  were  taken  into  account  in 
estimating  operating  expenses  as  an  element  in 
the  rate  adjustments. 

During  the  remainder  of  1920  the  Labor  Board 
was  kept  busy  with  matters  other  than  wages. 
A  sharp  difference  in  opinion  was  manifested  in 
the  matter  of  creation  of  boards  of  adjustment. 
It  will  be  recalled  that  the  Act  says  that  such 


AMERICAN  RAILROADS  24.'] 

boards  may  be  created.  Their  establishment  is 
not  mandatory.  Moreover  the  Act  says  that  they 
may  be  organized  by  individual  systems,  by  re- 
gions, or  for  the  country  at  large. 

The  unions  affiliated  with  the  American  Federa- 
tion of  Labor*  (shop  crafts,  smtchmen,  tele- 
graphers, stationmen,  maintenance  of  way  men, 
signalmen  and  a  few  others)  held  out  tenaciously 
for  national  boards.  Among  the  railroad  execu- 
tives there  was  a  diversity  of  view.  A  few  were 
willing  to  concede  the  principle  of  national  boards, 
a  larger  number  preferred  regional  boards,  but 
the  majority  insisted  upon  local  boards.  The  view 
of  the  majority  prevailed  in  railroad  representa- 
tion before  the  Labor  Board  and  the  issue  was 
clean  cut — national  versus  local  boards  of  adjust- 
ment. 

The  reasons  for  the  insistence  of  the  unions 
upon  national  boards  is  obvious.  They  desired 
centralization  of  control  and  preferred  that  all 
questions  of  wages  and  working  rules  should  be 
approached  from  the  national  rather  than  a  local 
viewpoint.  During  the  period  of  federal  control 
the  centralization  of  power  in  Washington  enabled 
the  organizations  more  effoctively  to  control  the 
situation  and  to  safeguard  their  national  inter- 
ests. Conversely,  it  weakoiKnl  the  inflnonce  and 
prestige  of  the  railroad  officials  locally.  Obviously 
also,  the  principle  of  local  boards  was  favored 

•It  was  with  these  unions  that  Director  General  Hines  executed 
the  national  agreements  during  the  closing  months  of  federal 
control. 


244  AMERICAN   RAILROADS 

by  railroad  officials  because  of  the  serious  effect 
of  centralization  upon  the  relations  locally.  It 
is  easier  to  keep  up  the  morale  and  to  sustain 
discipline  if  differences  may  be  settled  by  "home 
rule"  rather  than  by  a  distant  court. 

In  this  controversy  the  train  service  brother- 
hoods took  no  active  interest.  There  was  apparent 
indifference  on  their  part  as  to  whether  the 
boards  should  be  national,  regional  or  local.  So 
far  as  these  brotherhoods  were  concerned  the 
creation  of  system  boards,  the  universal  practise 
in  train  service  before  federal  control,  appeared 
to  be  satisfactory  to  the  leaders. 

During  the  negotiations  the  establishment  of 
regional  boards  was  suggested  but  was  not  accept- 
able to  the  shop  crafts  and  affiliated  unions. 
Their  national  agreements  were  prized  too  highly 
to  risk  any  abridgment  of  their  scope  by  local 
agreements.  The  Labor  Board  held  that  the 
matter  was  one  for  settlement  between  the  rail- 
roads and  their  employees  and  that  it  was  not 
before  the  Board  for  determination. 

As  the  question  stood  in  July,  1922,  nothing 
whatever  had  been  done  except  in  the  case  of  the 
train  service  employees  who  had  on  several  sys- 
tems joined  the  managements  in  the  creation  of 
boards  of  adjustment  with  jurisdiction  in  disputes 
affecting  enginemen,  conductors,  firemen  and 
trainmen  (including  yardmen  where  such  em- 
ployees belonged  to  the  Brotherhood  of  Railroad 
Trainmen  instead  of  to  the  Switchmen's  Union). 
On  the  Pennsylvania  System,  boards  wore  estab- 
lished for  practically  all  employees,  but  they  were 


AMERICAN  RAILROADS  246 

not  recognized  by  the  executive  officers  of  the 
unions,  they  were  frowned  upon  by  the  Labor 
Boardj  and  their  legal  status  was  uncertain.  The 
continued  insistence  of  the  unions  upon  national 
boards  was  an  issue  in  the  nation-wide  strike  of 
shopmen  which  began  on  July  1,  1922. 

An  agreement  between  the  railroads  and  all  of 
the  classified  employees  as  to  these  adjustment 
boards  would  have  been  welcomed  by  the  Railroad 
Labor  Board.  In  the  absence  of  adjustment 
boards,  the  Labor  Board  was  called  upon  to 
hear  and  decide  a  large  volume  of  disputes  and 
grievances,  many  of  them  trivial.  These  took 
much  time  which  might  better  have  been  devoted 
by  the  Board  to  the  larger  and  more  important 
questions  which  the  Board  was  created  to  con- 
sider and  decide. 

The  fall  of  1920  brought  with  it  an  unexpectedly 
large  volume  of  traffic,  and  the  transportation  per- 
formance of  the  railroads  exceeded  all  previous 
records,  including  that  of  1918  when  the  United 
States  Railroad  Administration,  with  its  war 
traffic,  set  the  highest  mark  to  that  time.  The 
railroad  executives  took  satisfaction  in  their 
transportation  achievement,  as  it  was  accom- 
plished in  spite  of  the  impaired  physical  condition 
of  freight  cars,  roadway,  and  structures.  As  was 
stated  in  Chapter  XV,  the  condition  of  freight 
cars  had  deteriorated  during  federal  control,  the 
normal  rate  of  car  renewals  had  not  been  kept 
up,  and  there  were  serious  deficiencies  in  the  rate 
of  renewals  of  ties,  rails  and  ballast. 


246  AMERICAN    RAILROADS 

The  traffic  record  of  the  latter  part  of  the  year 
was  a  happy  omen  for  restored  private  control. 
Rates  had  been  increased  presumably  to  take  full 
account  of  higher  wages  and  operating  costs. 
The  greater  volume  of  traffic,  under  the  law  of 
increasing  returns,  meant  lower  unit  costs  and 
greater  net  income.  The  immediate  future  seemed 
to  hold  out  promise  of  mucli  needed  financial  re- 
lief. 

Yet  the  financial  results  of  the  year's  opera- 
tions were  disappointing.  While  1920  had  the 
largest  operating  revenue  in  railroad  history,  the 
operating  expenses  were  so  much  more  than  were 
anticipated  that  one  has  to  go  back  more  than  35 
years,  when  railroad  mileage  and  investment  were 
but  a  fraction  of  those  of  1920,  to  find  a  year  with 
less  net  income. 

In  order  to  earn  6%  upon  the  property  value 
tentatively  assumed  by  the  Interstate  Commerce 
Commission  as  the  basis  for  rate-making  in  1920, 
the  net  railway  operating  income  should  have  been 
$1,134,000,000^.  It  actually  was  $62,000,000,*  a 
return  of  but  0.3%  on  property  value.  Few  roads 
actually  earned  dividends,  the  majority  did  little 

•This  figure  is  what  the  railroads  actually  earned.  The  com- 
panies, however,  were  paid  tlie  Government  standard  return  for 
the  last  two  months  of  federal  control,  and  had  the  Government 
guarantee  of  test  period  net  income  during  the  six  months  of  the 
transition  period.  From  the  corporate  viewpoint  the  financial 
results  were  much  better  than  the  net  railway  operating  income 
of  $62,000,000  indicates,  but  the  fact  remains  that  the  railroads 
actually  earned  only  that  amount  from  operation.  Taking  account 
of  certain  "lap  over"  items  which  belonged  in  the  accounts  oi 
1918  and  1919,  the  net  railway  operating  income  as  finally  re 
ported  for  1920,  was  but  $22,000,000,  or  but  0.1%  on  propertj 
value. 


AMERICAN  RAILROADS  217 

better  thau  earn  their  fixed  charges,  and  a  sub- 
stantial number  failed  to  earn  their  operating 
expenses  and  taxes. 

The  startling  lack  of  earning  power  in  1920  was 
the  result  of  several  causes.  Among  them  may  be 
listed  the  effect  of  the  transfer  from  federal  to 
private  control,  the  serious  ''outlaw"  strikes  in 
April  and  May,  the  efforts  to  ''catch  up"  on  de- 
ferred maintenance,  the  substantial  wage  in- 
creases which  took  effect  four  months  before  the 
rate  increase  began  to  add  to  revenues,  and  the 
national  agreements  which  applied  to  payroll  ex- 
pense throughout  the  entire  year.  The  higher 
freight  and  passenger  rates  were  in  effect  only 
during  the  last  four  months  of  the  year,  but  the 
new  wage  rates  applied  to  the  operating  expenses 
of  eight  months,  and  the  higher  fuel  and  other 
material  costs  burdened  expenses  throughout  the 
entire  twelve  months. 

A  comparison  of  railroad  operating  perform- 
ance in  1920  with  that  of  1916,  the  year  before  the 
United  States  entered  the  war,  is  of  interest.  Such 
questions  as  these  may  be  answered.  In  what 
respects  were  there  differences  in  trackage  and 
equipment?  What  was  the  total  transportation 
product  in  the  two  years?  What  was  the  relative 
degree  of  train  operating  efficiency?  To  what 
extent  did  rate  advances  keep  pace  with  rising 
costs?  In  what  elements  of  expenses  did  the 
greater  increases  occur? 

In  so  far  as  trackage  and  equipment  are  con- 
cerned the  differences  between  1920  and  1916  were 


248  AMERICAN    RAILROADS 

slight.  The  normal  rate  of  additions  and  better- 
ments to  railroad  property,  arrested  early  in  the 
last  decade  by  the  diminishing  rate  of  return  upon 
railroad  investment,  was  almost  stopped  when  the 
European  war  started  in  1914, *  and  when  the 
United  States  entered  the  conflict  in  1917,  it  was 
financially  impracticable  to  resume  it.  The  few 
additions  made  to  railroad  facilities  during  the 
period  of  federal  control  were  dictated  in  the 
main  by  the  needs  of  war  traffic.  The  road  miles 
of  Class  1  companies  in  1920  were  but  2%  more 
than  those  of  1916,  and  the  miles  of  total  trackage 
(including  additional  mains,  sidings  and  yards) 
were  but  4%  greater.  As  to  equipment,  the  situa- 
tion was  but  little  different.  The  number  of  loco- 
motives available  in  1920  was  about  6%  greater 
than  in  1916.  The  number  of  freight  cars  had 
increased  about  2i/>%  and  the  number  of  passen- 
ger cars  was  about  3Mj%  greater.  It  should  be 
noted,  however,  that  both  as  to  locomotives  and 
cars  the  normal  rate  of  retiring  those  of  obsolete 
type  had  not  ])een  maintained  during  the  four- 
year  period,  and  the  inventory  of  1920  contained 
many  units  of  equipment  which  were  inefficient 
and  which  normally  would  have  been  replaced 
several  years  earlier  by  new  units  of  modern  de- 
sign. 

Having  in  mind  the  relatively  slight  increase 
in  trackage  and  equipment  it  is  interesting  to  note 
that  the  railroads  in  their  first  year  of  resumed 
private  management  produced  21%  more  revenue 

"See  Chapter   II,   page   J 9. 


AMERICAN  RAILROADS  249 

ton-miles  and  39%  more  passenger-miles  than  in 
1916,  the  pre-war  year  taken  for  comparison. 
The  revenue  ton-miles  of  1920  were  410,306,000,- 
000.  In  1916  they  were  339,870,000,000.  The 
passenger-miles  of  1920  were  46,849,000,000.  In 
1916  they  were  33,646,000,000.  The  traffic  of  1920 
exceeded  that  of  1918,  the  first  year  of  federal 
control,  in  which  all  previous  records  to  that  time 
had  been  broken. 

As  evidence  of  the  efficiency  of  management  in 
1920  it  may  be  noted  that  the  21%  additional  ton- 
miles  in  that  year  were  produced  with  relatively 
little  increase  in  freight  train-miles.  The  freight 
train-miles  of  1920  were  594,000,000.  In  1916  they 
were  585,000,000.  The  increase,  therefore,  was 
but  1.5%.  This  favorable  performance  was  made 
possible  by  better  car  loading  and  better  train 
loading.  The  average  car-load  increased  from 
22.41  tons  in  1916  to  26.72  tons  in  1920,  and  the 
average  train-load  increased  from  545  tons  to  647 
tons. 

The  1920  train  efficiency  was  even  more  striking 
in  the  passenger  service,  but  in  this  case  it  called 
for  some  sacrifice  on  the  part  of  the  traveling 
public.  The  increase  of  39%  in  passenger-miles 
was  accomplished  with  actually  less  passenger 
train-miles.  The  mileage  of  passenger  and  mixed 
trains  in  1920  was  587,000,000.  In  1916  it  was 
599,000,000.  This  sa\dng  was  the  result  of  reduc- 
ing competitive  service  and  of  cutting  off  trains 
that  were  not  paying  their  operating  expenses. 
Drastic  reductions  were  made  during  federal  con- 
trol so  as  to  release  trackage  and  equipment  for 


250  AMERICAN  RAILROADS 

the  more  important  freight  service.  While  many 
of  the  discontinued  trains  were  restored  in  1919 
and  1920,  the  time  tables  of  1920  had  actually  less 
trains  than  in  1916.  In  1920  the  average  passen- 
ger train-load  was  80  passengers.  In  1916  the 
average  was  56. 

With  these  remarkable  gains  in  train  loading 
it  would  be  natural  to  look  for  lower  unit  costs  in 
operation.  These  economies,  however,  had  little 
effect  in  offsetting  the  rising  costs  of  material 
and  labor.  Nor  w^ere  these  costs  met  by  the  ad- 
vances in  freight  and  passenger  rates.  Comparing 
1916  with  1920  these,  in  very  brief  terms,  were 
the  significant  results : 

Operating  revenues  increased  from  $3,382,000,- 
000  to  $6,178,000,000,  a  gain  of  82%. 

Operating  expenses  rose  from  $2,211,000,000  to 
$5,831,000,000,  an  increase  of  164%. 

Net  operating  revenue  fell  from  $1,170,000,000 
to  $347,000,000,  a  loss  of  70%. 

After  deduction  of  taxes  and  miscellaneous 
items  the  net  operating  income  from  which  in- 
terest charges  and  dividends  are  paid  shrunk 
from  $984,000,000  to  $62,000,000,*  a  loss  of  94%. 

The  net  operating  income  of  1916  was  equivalent 
to  a  return  of  5.3%  on  the  investment  in  railroad 
property.  In  1920,  with  an  investment  12% 
greater  than  in  1916,  the  return  on  the  investment 
was  but  0.3%. 

The  explanation  of  the  alarming  loss  in  net 
income  is  found  in  operating  expenses.     These 

"See  foot-uote,  page  246. 


AMERICAN  RAILROADS  251 

were  seriously  inflated  by  war  prices,  war  wage 
rates,  and  by  unfairly  restrictive  working  rules 
adopted  during  federal  control.  The  rules, 
particularly  those  in  the  national  agreement,  bore 
with  exceptional  force  upon  maintenance  ex- 
penses. The  abolition  of  piece-work  in  shops  was 
another  important  factor. 

During  federal  control,  freight  and  passenger 
rates  were  increased  about  25%.  In  the  latter 
part  of  August,  1920,  a  further  increase  of  about 
35%  was  authorized  by  the  Interstate  Commerce 
Commission.  The  increases  last  named  were  in 
effect  but  four  months  in  1920,  so  that  their  full 
effect  was  not  reflected  in  the  average  revenue 
per  unit  of  service  for  the  entire  year.  In  1920 
the  railroads  collected  1.052  cents  per  ton-mile. 
In  1916  the  average  was  0.707  cents.  The  revenue 
per  passenger-mile  in  1920  was  2.75  cents.  In 
1916  it  was  2.00  cents.  These  units,  of  course, 
take  account  both  of  increased  rates  and  of 
changes  in  the  nature  of  the  traflBc.  They  indi- 
cate that  in  1920,  compared  with  1916,  the  rail- 
roads collected  49%  more  per  ton-mile  and  37% 
more  per  passenger-mile.*  These,  combined  mth 
the  increase  of  21%  in  ton-miles  and  39%  in  pas- 
senger-miles, brought  about  the  average  of  82% 
increase  in  total  operating  revenues. 

*Thi8  does  not  mean  that  the  average  increase  in  rates  was 
but  49%.  As  a  matter  of  fact  it  was  greater.  But  in  1920, 
the  commodities  which  move  under  low  rates  made  up  a  greater 
proportion  of  the  total  tonnage.  This  change  had  the  effect  of 
pulling  down  the  average  revenue  per  ton-mile  and  of  obscuring 
the  full  effect  of  the  rate  increases. 


262  AMERICAN  RAILROADS 

Against  these  increases  in  revenue  the  rail- 
roads spent  155%  more  in  maintenance  of  way; 
186%  more  in  maintenance  of  equipment;  165% 
more  in  transportation  expenses;  and  164%  more 
in  total  operating  expenses.  The  relation  of  these 
changes  to  net  railway  operating  income  may 
easily  be  comprehended  when  the  more  important 
items  of  the  income  account  for  Class  1  railroads 
are  shown  in  terms  of  parts  of  each  dollar  of 
operating  revenues  in  each  of  the  two  years. 
Here  is  the  comparison: 

Item                                            1920  1916 

Operating   revenues    $1,000  $1,000 

Operatin}]^   expenses    944  .654 

Net   operating'    revenue 056  .346 

Taxes    and    miscellaneous 052  .055 

Net  operating  income 004  .291 

Return  on  property'   investment.  ...   0.3%  5.3% 

We  need  not  here  enter  upon  a  full  discussion 
of  the  details  of  operating  expenses,  but  some  of 
the  striking  features  may  be  referred  to.  The 
effect  of  the  higher  wage  rates  and  restrictive 
rules  was  particularly  noticeable  in  equipment 
maintenance.  The  following  figures  tell  their 
own  story: 

Item  1920                1916 

Repairs  to  .steam  locomotives  $601,386,000  $177,186,000 

Repairs  to  freight  cars 593,689,000     180,784,000 

Repairs  to  passenger  cars..  100,585,000       34,545,000 

These  three  items  in  1920  were  239%  greater 
than  in  1916  and  they  account  for  over  $900,000,- 
000  of  the  total  increases  in  operating  expenses. 


AMERICAN  RAILROADS  263 

A  part  of  this  increase  may  be  attributed  to  the 
efforts  of  the  railroads  in  the  latter  part  of  1920 
to  '  *  catch  up  "  on  maintenance  work  deferred  dur- 
ing the  period  of  federal  control  and  in  1917. 

In  transportation  expenses  the  largest  increase 
appeared  in  locomotive  fuel,  and  there  were  heavy 
increases  throughout  the  entire  group  of  yard 
expenses.  Enginehouse  expenses,  a  labor  item 
peculiarly  affected  by  the  national  agreements, 
rose  from  $47,460,000  in  1916  to  $170,445,000  in 
1920,  an  increase  of  259%.  Loss  and  damage  to 
freight  showed  the  greatest  percentage  of  increase 
among  the  large  items— $120,663,000  in  1920, 
against  $22,739,000  in  1916,  a  five-fold  increase. 
This  startling  increase  was  due  in  part  to  the 
higher  values  of  commodities  lost  or  damaged, 
but  was  mainly  the  reflex  of  lowered  morale 
among  employees  and  an  alarming  increase  in 
theft. 

The  statistics  relating  to  employees  and  their 
compensation  threw  light  on  the  whole  subject. 
The  average  number  of  employees  in  1920  was 
2,012,706.  The  comparable  figure  for  1916  was 
1,599,168.  Their  compensation  in  1920  was 
$3,662,543,672.  In  1916  it  was  $1,366,100,518. 
These  figures  indicate  that  the  increase  in  the 
number  of  employees  was  26%  and  that  the  in- 
crease in  the  total  compensation  was  168%. 
Stated  in  other  terms,  the  1920  labor  share  of 
revenue  was  59.9  cents  out  of  each  dollar  of  op- 
erating revenues.    In  1916  it  was  40.8  cents. 


CHAPTER  XXIII 

A  REVIEW  OF  THE  YEAR  1921 

THE  disappointiug  linancial  results  of  1920, 
while  discouraging  to  those  who  favored 
])rivate  ownerslii])  and  management  of  rail- 
roads, did  not  disturb  their  belief  in  the  inherent 
soundness  of  the  Transportation  Act  nor  shake 
their  faith  in  the  ultimate  restoration  of  railroad 
earning  power  and  ability  to  serve  the  public  sat- 
isfactorily. The  year  1920  could  not  be  regarded 
as  a  fair  test  of  the  new  principles  of  federal 
regulation.  So  many  unusual  features  were 
crowded  into  the  12  months  that  it  was  difficult 
and  unsafe  to  draw  any  conclusions  from  the 
results.  First,  there  was  the  transfer  from  fed- 
eral to  private  control.  Then  came  the  6  months 
of  the  guarantee  period  which  may  be  regarded 
as  a  form  of  joint  control,  and  then  came  4 
months  in  which  the  railroad  companies  were  left 
entirely  to  their  own  resources  under  a  new  and 
higher  scale  of  rates  and  w^ages.  During  the 
guarantee  period  the  Labor  Board  had  advanced 
wages  22%.  Tli(>  record  of  the  first  half  of  the 
year  had  been  marred  by  serious  strikes  among 
yard  employees. 

These  and  other  reasons  were  sufficient  ex- 
planation for  the  alarmingly  low  net  income  of 
1920.  It  was  confidently  expected  that  1921,  a 
full  year  of  operation  under  the  new  law,  and 

264 


AMERICAN  RAILROADS  255 

free  from  the  first  effects  of  the  transition  from 
federal  to  private  control,  would  be  encouraging 
and  would  vindicate  the  faith  of  those  who  re- 
garded the  passage  of  the  Transportation  Act  as 
marking  a  new  and  better  era  in  railroad  affairs. 
The  results  of  the  year,  however,  while  much 
better  than  those  of  1920,  were  discouraging. 
They  failed  to  satisfy  each  of  the  three  groups  of 
interests  which  the  Act  was  intended  to  protect. 
At  the  close  of  the  year  the  general  public  was 
insisting  that  rates  were  too  high  and  that  they 
must  be  reduced  without  regard  to  railroad  net 
income.  Labor  was  aggrieved  and  in  a  rebellious 
mood  because  the  Labor  Board,  in  recognition  of 
changed  economic  conditions,  had  taken  away  a 
part  of  the  wage  increases  granted  in  1920  and 
had  eliminated  or  changed  some  of  the  restrictive 
working  rules.  Railroad  security  holders  were 
disappointed  because  the  net  income  of  the  roads 
was  but  slightly  more  than  one-half  of  the  sum 
which  the  rate  increases  of  the  previous  year, 
under  the  rate-making  rule  of  the  Transportation 
Act,  had  contemplated.  These  security  holders 
had  had  reason  to  expect  that  the  properties 
would  earn  6%  on  their  value.  The  actual  return 
was  but  8.3%.  The  volume  of  tonnage  was  23% 
less  than  in  1920,  so  that  notwithstanding  the  sub- 
stantial rate  increases  in  effect  throughout  1921, 
the  freight  revenue  was  9.4%  less  in  1921  than  in 
1920.  Inasmuch  as  the  rate  increases  of  1920 
had  been  predicated  upon  a  volume  of  traffic 
greater  than  that  which  actujdly  moved  in  1921, 
and  inasmuch  further  as  the  effect  of  the  restric- 


256  AMERICAN  RAILROADS 

live  rules  and  the  new  wage  rates  had  been  under- 
estimated, the  income  results  of  1921  were  bound 
to  be  disappointing.  Of  the  two  adverse  in- 
fluences the  loss  in  traffic  obviously  was  the  more 
serious. 

The  extent  of  the  1920  advances  in  rates* 
startled  the  shipping  and  traveling  public  but 
the  higher  rates  were  accepted,  as  were  other 
war-inflated  costs,  as  phenomena  of  the  period. 
Business  was  booming  at  the  time  and  the  effect 
of  the  greater  transportation  cost  was  not  felt. 
In  September  and  October  1920,  the  volume  of 
freight  traffic  under  the  new  rates  was  greater 
than  ever  before  and  all  previous  records  in 
loaded  cars  per  week  were  broken. 

Beginning  in  December,  1920,  however,  a 
sharp  recession  set  in,  and  by  January,  1921,  the 
full  effect  of  the  depression  was  apparent.  Then 
it  was  that  the  demand  for  relief  from  high  freight 
rates  began  to  assume  force.  Throughout  the 
early  part  of  1921  the  carriers  were  besieged 
mth  requests  for  rate  reductions  and  many  such 
reductions  were  made.  In  the  aggregate  these 
individual  downward  adjustments  were  large  but 
they  were  not  general  enough  to  meet  the  demand. 
Groups  of  shippers,  such  as  those  interested  in 
live  stock,  building  materials  and  agricultural 
products,  exerted  concerted  pressure  and  the  sub- 
ject was  given  a  strong  political  tinge.  The  In- 
terstate Commerce  Commission  was  petitioned  to 
order  general  decreases,  and  the  influence  of  the 

•See  Chapter  XXII. 


AMERICAN  RAILROADS  257 

agricultural  bloc  in  Congress  was  centered  upon 
the  Administration  and  the  Commission. 

Following  the  hearings  upon  the  several  ap- 
plications for  rate  cuts,  the  Commission  ordered 
reductions  in  the  rates  on  live  stock,  hay  and 
grain,  and  subsequently  the  railroads  voluntarily 
offered  to  make  a  10%  reduction  on  all  products 
of  the  farm,  orchard  and  ranch.  There  was  evi- 
dence that  this  offer  was  designed  to  mollify  the 
agricultural  bloc  which  had  set  out  to  cripple  the 
Transportation  Act  by  forcing  through  an  amend- 
ment which  would  eliminate  the  rule  of  rate-mak- 
ing. The  offer  of  the  railroads  was  approved 
by  the  Commission  and  in  the  meantime,  on 
December  14,  it  began  a  long  dra^^^l  out  inquiry 
into  the  broad  question  of  railroad  management 
and  its  relation  to  the  rate  scale  as  a  whole. 

The  railroads  contended  that  in  view  of  their 
precarious  financial  condition,  the  rate  reductions 
should  wait  until  the  Labor  Board  had  acted  upon 
the  pending  requests  for  wage  reductions. 
During  the  first  half  of  the  year  very  few  roads 
had  earned  sufficient  to  pay  their  full  charges. 
Some  carriers  had  barely  earned  their  operating 
expenses  and  taxes.  But  the  shippers  insisted 
that  the  delay  of  the  Railroad  Labor  Board  in 
bringing  about  a  liquidation  in  labor  should  not  be 
allowed  to  block  a  prompt  adjustment  in  a  rate 
scale  so  high  as,  in  their  opinion,  to  restrict  in- 
dustry and  commerce.  The  latter  view  finally 
prevailed  when  the  Commission,  in  May,  1922, 
decided  that  a  general  reduction  in  freight  rates 
should  be  made.     Tn  the  meantime  the  Railroad 


258  AMERICAN   RAILROADS 

Labor  Board  had  ordered  a  12%  reduction  in 
wages  and  had  annulled  some  of  the  restrictive 
rules  of  the  national  agreements. 

From  the  viewpoint  of  organized  labor  the  de- 
velopments of  1921  were  decidedly  unfavorable. 
The  aim  of  the  leaders  had  been  to  retain  the 
maximum  of  the  concessions  granted  to  labor  un- 
der the  exigencies  of  the  war  emergency  and  in 
the  subsequent  period  of  inflation.  Their  policy 
had  been  to  resist  to  the  utmost  every  effort  on 
the  part  of  the  railroads,  and  the  shippers'  or- 
ganizations (which  in  this  matter  sui)ported  the 
railroads),  to  restore  the  former  relationship  be- 
tween payrolls  and  revenues. 

It  will  be  recalled  that  in  May,  1920,  the  Labor 
Board,  in  disposing  of  the  controversy  carried 
over  from  federal  control,  ordered  a  general  in- 
crease of  22%  in  the  wages  of  all  classified  em- 
ployees, and  continued  indefinitely  all  of  the  rules 
of  the  L^uited  States  Railroad  Administration,  in- 
cluding the  national  agreements.  This  increase 
added  more  than  $600,000,000  per  year  to  the  $1,- 
000,000,000  annual  increases  authorized  during 
federal  control.  AVhen  the  bottom  fell  out  of 
business  in  December,  1920,  and  the  necessity  for 
deflation  became  apparent,  the  railroads  appealed 
to  the  Labor  Board  to  restore  the  wage  basis  in 
effect  before  the  advances  of  May,  1920,  were 
made.  Later  they  petitioned  for  the  cancelation 
of  the  national  agreements.  Hearings  were  be- 
gun in  January,  1921,  and  the  proceedings 
dragged  on  for  months.  The  Board's  decision 
was  not  announced  until  June,  when  a  12%  re- 


AMERICAN   RAILROADS  269 

duction  was  ordered,  effective  July  1.  This  meant 
a  cut  of  about  $400,000,000,  and  left  the  wage  scale 
about  7%  or  8%  above  that  in  effect  at  the  con- 
clusion of  federal  control.  With  this  decision 
came  also  an  order  abrogating  the  national  agree- 
ments in  principle,  but  specifying  that  they 
should  be  continued  in  force  until  the  railroads 
individually  with  their  employees  should  be  able 
to  negotiate  an  agreement  which  would  provide 
for  mutually  satisfactory  substitutes.  Failing 
to  reach  an  agreement,  the  disputed  points  were 
to  be  referred  to  the  Board  for  final  decision. 

This  abrogation  of  the  principle  of  the  national 
agreements  was  ineffective.  The  employees,  act- 
ing upon  the  advice  of  their  leaders,  held  out  for 
the  continuation  of  all  of  the  favorable  rules.  The 
inevitable  result  was  to  bring  the  controversy 
again  before  the  Board.  During  the  closing 
months  of  1921  the  Board  decided  most  of  the 
points  in  dispute.  These  applied  almost  entirely 
to  the  shop  crafts,  clerks,  stationmen,  signalmen, 
and  maintenance-of-way  employees.  The  train 
service  brotherhoods  were  not  affected  by  the 
national  agreements.  They  had  had  individual 
contracts  mth  the  railroads  for  many  years  and 
were  content  to  adhere  to  that  policy.  Effective 
December  1,  1921,  a  large  part  of  the  national 
agreements'  rules  which  restricted  output,  un 
fairly  penalized  the  roads  for  overtime,  or 
required  two  or  more  men  to  do  work  which 
formerly  was  done  by  one  man,  were  canceled.* 

*The  cancelation  of  favorable  rules  was  one  of  the  issues  in  the 
shopmen's  strike  in  July,  1922. 


260  AMERICAN  RAILROADS 

Following  the  announcement  of  the  wage  reduc- 
tions of  July  1,  most  of  the  labor  organizations 
polled  their  members  to  ascertain  their  attitude 
toward  a  strike  in  resistance  to  the  wage  cut.  In 
all  cases  the  leaders  announced  that  the  men  were 
practically  unanimous  in  voting  to  strike.  Need- 
less to  say,  however,  a  vote  to  strike  seldom 
means  that  the  voter  desires  that  a  strike  be 
called.  It  is  merely  a  vote  of  confidence  in  their 
leaders,  so  that  their  hands  will  be  strengthened 
in  negotiation.  The  tactics  of  the  leaders  indi- 
cated that  the  strike  vote,  which  was  taken  on  the 
issue  of  the  July  1  reductions,  was  not  taken  for 
the  purpose  of  striking  against  that  award.  There 
is  little  doubt  that  its  primary  purpose  was  to  dis- 
courage the  railroads  from  carrying  out  their 
announced  intention  to  seek  further  reductions. 
The  railroads  had  asked  the  Labor  Board  to  re- 
store the  wage  scale  in  effect  before  wages  were 
advanced  in  May,  1920.  To  do  so  would  have 
required  a  reduction  of  approximately  18%,  but 
the  Board's  order  called  for  a  cut  of  but  12%. 
Disappointed  in  the  result,  the  railroads  allowed 
it  to  become  known  that  they  would  ask  their 
employees  to  accept  a  further  reduction,  and 
would  again  appeal  to  the  Labor  Board  if  the 
employees  refused  to  agree.  It  was  clearly  evi- 
dent that  the  talk  of  striking  against  the  July 
award  was  intended  to  forestall  further  action  on 
the  part  of  the  railroads. 

The  railroads,  however,  were  not  influenced  by 
the  strike  talk.  On  October  14,  they  announced 
through  the  Association  of  Railway  Executives 


AMERICAN  RAILROADS  261 

that  they  would  appeal  to  the  Labor  Board  to 
order  a  further  reduction  to  restore  the  wage 
basis  of  April  30,  1920.  This  proposed  move  was 
met  at  once  by  an  order  from  the  chiefs  of  the 
enginemen,  firemen,  conductors,  trainmen  and 
switchmen  to  their  membership  to  strike  on 
September  30.  Technically  the  strike  w^as  to  be 
against  the  July  1  reduction  and  would  therefore 
be  a  strike  ag-ainst  the  acceptance  of  a  Govern- 
ment (Labor  Board)  decision. 

The  initiative  was  taken  by  the  train  service 
brotherhoods  with  the  expectation  that  they  would 
be  joined  by  the  other  organizations,  but  as  dif- 
ferences arose  between  the  two  groups,  the  Amer- 
ican Federation  of  Labor  organizations  decided  to 
hold  themselves  aloof  and  await  developments. 
There  had  never  been  close  cooperation  between 
the  ''Big  Four"  brotherhoods  and  the  American 
Federation  of  Labor,  as  the  brotherhoods  had 
never  entered  the  Federation.  Because  of  their 
policy  of  aloofness,  the  Federation  executive  of- 
ficers had  often  sarcastically  referred  to  the 
brotherhoods  as  the  "aristocrats  of  labor." 

The  Labor  Board,  w^iicli  had  been  criticized  for 
its  apparent  lethargy  up  to  that  time,  rose  to  the 
emergency  and  succeeded  almost  at  the  last  mo- 
ment in  having  the  strike  order  withdrawn.  While 
a  large  part  of  the  credit  for  finally  prevailing 
upon  the  brotherhood  chiefs  to  rescind  the  strike 
order  should  go  to  Mr.  Hooper  and  Mr.  McMeni- 
men  of  the  Board,  other  powerful  forces  had  domi- 
nant play.  Public  opinion  was  overwhelmingly 
against  the  brotherhoods.     The  five  organizations 


262  AMERICAN  RAILROADS 

(the  "Big  Four"  aud  the  Switchmen's  Union), 
numbering  about  400,000  men,  were  acting  with- 
out the  active  support  of  the  other  11  important 
organizations  whose  membership  was  close  to  1,- 
600,000.  There  was  conflict  even  among  the 
brotherhoods,  as  President  Lee  of  the  trainmen 
had  let  it  be  known  that  he  was  against  a  strike. 
The  strike  order  for  the  trainmen  was  not  given 
by  him  but  by  the  chairman  of  the  trainmen  on 
each  railroad  system.  While  giving  these  chair- 
men a  free  hand  to  act  according  to  the  wishes  of 
the  membership,  he  refused  to  accept  responsi- 
bility for  the  results. 

The  Administration  had  made  it  known  when 
the  crisis  came  that  all  of  the  forces  of  the  Gov- 
ernment would  be  put  behind  the  railroads  in 
sustaining  the  decision  of  the  Labor  Board  and 
in  keeping  the  wheels  moving.  Public  organiza- 
tions throughout  the  country  had  made  elaborate 
preparations  to  do  here  what  was  so  effectively 
done  in  England  a  short  time  before  in  a  similar 
crisis.  And  finally  the  condition  of  unemploy- 
ment gave  the  railroads  an  opportunity  to  recruit 
many  experienced  railroad  men  who  had  left  the 
service  during  the  war  and  had  not  been  re- 
employed. 

These  opposing  forces  were  too  great  to  be  de- 
fied. The  brotherhood  leaders  finally  backed 
down  as  gracefully  as  they  could  under  an  implied 
assurance  that  the  Board  was  then  so  overbur- 
dened by  disputes  over  rules,  which  would  be 
given  preference  over  petitions  affecting  wages, 
that  it  would  be  many  months  before  it  could  en- 
tertain any  new  proposals  for  wage  reductions. 


AMERICAN   RAILROADS  263 

A  ruling  was  announced  that  no  application  for 
wage  reductions  for  any  class  of  employee  would 
be  entertained  until  all  of  the  disputes  over  rules 
and  kindred  matters  had  been  decided  by  the 
Board. 

It  may  be  noted  here  that  Avhile  further  reduc- 
tions were  subsequently  (in  1922)  ordered  by  the 
Board  for  several  classes  of  labor,  including  shop- 
men, trackmen,  clerks,  stationmen,  and  others,  no 
further  reductions  were  asked  by  the  railroads 
or  granted  by  the  Board  for  the  men  in  engine, 
train  and  yard  service.  As  a  matter  of  fact  there 
is  justice  in  the  position  of  the  train  service 
brotherhoods  that  their  wages  were  not  increased 
relatively  as  much  as  those  of  other  employees 
during  the  war,  and  that  therefore  they  should 
not  be  called  upon  to  assume  decreases  as  great 
as  those  ordered  for  employees  whose  war-time 
gains  had  been  greater. 

From  the  viewpoint  of  the  railroad  security 
holder  the  operating  results  of  1921  furnished 
ground  for  both  optimism  and  pessimism.  The 
optimistic  view  was  that  1921  was  much  better 
than  1920.  The  opposite  view  was  that  the  rail- 
roads, under  war-period  rates  (which  would  surely 
be  reduced  by  the  Interstate  Commerce  Com- 
mission), were  able  to  earn  but  little  more  than 
one-half  of  the  sum  defined  by  the  Transportation 
Act  as  a  fair  return. 

In  the  year  1921  the  net  railway  operating  in- 
come for  Class  1  railroads  was  $615,000,000. 
From  this  amount  they  had  to  meet  their  rentals, 


264  AMERICAN   RAILROADS 

interest  charges  and  other  income  deductions,  pay 
dividends  and  make  capital  improvements.  In 
order  to  earn  the  then  statutory  rate  of  6%  on  the 
property  vahies  tentatively  taken  by  the  Com- 
mission in  1920  for  rate-making  purposes,  the  car- 
riers should  have  earned  $1,134,000,000.  Instead 
of  earning  67o  they  actually  earned  but  3.3 7o. 
The  following  table  contains  the  condensed  in- 
come account  for  1919,  compared  with  1920  and 
vdih  1916.  From  the  viewpoint  of  net  income,  the 
latter  was  the  most  prosperous  year  in  railroad 
history. 

CONDENSED   INCOME   ACCOUNT   OF   CLASS   1 
RAILROADS 

Calendar  Year  Ended  December  31 
Item  1921         1920         1916 

Miles  of  railroad 234,912    235,580    230,991 

(Millions)  (Millions)  (Millions) 

Operating  revenues  $5,563  $6,225  $3,597 

Operating  expenses   4,597  5,826  2,357 

Net  operating  revenue 966  399  1,240 

Taxes  and  uncollectible 283  282  158 

Railway  operating  income .. .  683  117  1,082 

E(||)t.  and  joint  facility  rents  6S  ,"),")  42 

Net  railway  operating  income  615  62  1,040 

Operating  ratio  (per  cent) . .  82.6  93.5  65.5 
Return    on    investment    (per 

cent) 3.3  0.3  6.2 

It  is  customary  in  reviewing  the  results  of  any 
one  year  to  make  comparisons  with  the  immedi- 
ately preceding  year.  In  this  case  the  satisfac- 
tion that  was  afforded  to  the  railroads  by  the 


AMERICAN  RAILROADS  265 

marked  comparative  improvement  in  1921  over 
1920  was  tempered  by  the  fact  that  1920  was  the 
poorest  year  in  net  income  since  the  Interstate 
Commerce  Commission,  in  1888,  began  to  publish 
the  aggregate  figures  for  all  railroads.  The  net 
railway  operating  income  in  1920  was  not  far 
from  zero.  The  year  1921,  therefore,  could  not 
be  viewed  in  true  perspective  by  taking  1920  as 
the  basis  for  comparison.  It  should  be  compared 
with  a  pre-war  year.  For  that  purpose  1916  is 
taken  here.  It  was  the  year  immediately  pre- 
ceding the  entrance  of  the  United  States  into  the 
World  War  and  was  one  in  which  the  net  results 
were  unusually  favorable. 

The  figures  show  that  while  the  1921  operating 
revenues  were  55%  greater  than  those  of  1916, 
the  1921  operating  expenses  were  95%  greater. 
The  relation  of  expenses  to  revenues  in  the  two 
years  is  sho^vii  by  the  operating  ratio.  In  1921, 
82.6  cents  out  of  every  dollar  of  operating  rev- 
enues were  taken  by  operating  expenses.  The 
comparable  ratio  in  1916  was  65.5.  The  final  re- 
sult in  net  railway  operating  income  was  a  return 
of  3.3%  upon  property  investment  in  1921,  in  con- 
trast to  a  return  of  6.2%  in  1916. 

While  it  is  true  that  the  1921  results  would 
have  been  more  favorable  if  the  effect  of  the  wage 
cuts  and  the  abolition  of  some  of  the  restrictive 
working  rules  had  applied  during  the  entire  year 
instead  of  in  but  part  of  the  year,  yet  there  is  a 
more  important  factor  which  bears  in  the  op- 
posite direction.  If  1921  had  been  charged  with 
its  full  normal  proportion  of  maintenance,  the  re- 


266  AMEHKAN    HAII.ROADS 

turn  upon  the  iiivostniciit  would  have  been  much 
smaller.  In  the  almost  desperate  efforts  of  maii- 
agomont  to  trim  expenses  to  meet  the  heavily  re- 
duced earnings,  practically  every  expenditure 
that  could  be  avoided  was  deferred.  Mainte- 
nance, as  a  result,  was  neglected,  both  in  way  and 
structures  and  in  equipment. 

Inasmuch  as  the  properties  were  returned  at  the 
termination  of  federal  control  in  a  sub-normal 
condition  of  repair,  and  inasmuch  as  but  a  part 
of  the  deferred  maintenance  was  made  up  in  1920, 
the  need  for  extensive  and  expensive  maintenance 
programs  in  1021  was  pressing  in  nearly  every 
element  of  way,  structures  and  equipment.  Such 
deferred  work  is  always  more  costly  than  work 
done  in  season.  There  are  no  data  from  which 
may  be  computed  the  amount  of  this  substantial 
maintenance  debt  of  1017-1921  to  1922  and  the 
years  which  will  follow,  but  the  records  give  some 
indication  of  the  state  of  equipment  alone.  x\t 
the  close  of  1921,  23%  of  passenger  and  freight 
locomotives  were  unserviceable,  mainly  because 
of  needed  repairs.  Normally  the  unserviceable 
locomotives  should  not  be  more  than  10""*  of  the 
total.  In  the  case  of  freight  cars,  13%  were  un- 
serviceable in  December,  1921.  The  normal  is 
from  4%  to  6%.  Then,  too,  there  was  the  item 
of  equipment  renewals.  The  pre-war  program  of 
displacing  the  older  types  by  new  equipment  had 
been  substantially  reduced  since  1916.  As  a  re- 
sult, in  1921,  there  was  much  more  than  the  normal 
percentage  of  locomotives  and  cars  which  had 
passed  beyond  their  serviceable  span  of  life  and 


AMERICAN  RAILROADS  267 

should  have  been  replaced  by  units  of  modern 
and  more  efficient  type. 

It  is  plain,  therefore,  that  the  1921  showing 
would  have  been  more  discouraging  if  the  year 
had  been  called  upon  to  assume  its  normal  pro- 
portion of  maintenance  and  renewal  costs,  and  if 
the  normal  amount  of  additions  and  betterments, 
which  usually  carry  substantial  charges  to  operat- 
ing expenses,  had  been  undertaken.  This  being 
true,  it  follows  that  1922  and  subsequent  years 
will  be  called  upon  to  bear  burdens  which  should 
have  been  spread  over  the  preceding  five  or  six 
years.  These  burdens,  too,  will  be  much  greater 
than  if  the  work  had  been  done  at  the  proper 
time. 


CHAPTER  XXIII 

THE  RAILROAD  SITUATION  IN  JULY,  1922 

AMONG  the  problems  of  railroad  adiuiiiistra- 
tion  at  the  close  of  the  first  half  of  1922, 
■  four  groups  stood  out  prominently.  They 
were:  (1)  finance,  (2)  labor  relations,  (3)  su- 
pervising organization,  and  (4)  public  relations. 
The  problems  of  finance  were  of  greatest  im- 
portance, but  as  each  of  the  other  three  groups 
of  problems  were  closely  related  to  finance,  the 
four  will  be  discussed  in  reverse  order. 

During  the  concluding  months  of  the  period  of 
federal  control  public  opinion  toward  private 
management  of  railroads  was  more  favorable  than 
at  any  time  since  the  beginnings  of  anti-railroad 
agitation  in  the  early  70 's.  The  more  liberal  rate- 
making  principles  of  the  Transportation  Act,  the 
willingness  of  the  Government  to  recognize  the 
fact  that  reasonably  adequate  earnings  were 
necessary,  not  only  for  the  railroad  companies, 
but  also  for  the  public  which  depended  upon  rail- 
road service,  were  the  reflex  of  that  favorable 
attitude.  The  public  had  not  been  pleased  with 
the  experiment  in  govenmiental  control,  particu- 
larly during  the  period  following  the  signing  of 
the  armistice,  and  there  was  a  general  disposition 
to  encourage  and  support  the  railroad  executives 
in  their  efforts  to  restore  normal  service  when  pri- 

268 


AMERICAN  RAILROADS  269 

vate  operation  was  resumed.  The  friendly  atti- 
tude continued  throughout  the  greater  part  of 
1920,  but  a  change  set  in  after  the  effects  of  the 
business  depression  began  to  be  felt  early  in  1921. 
Shippers  and  travelers  began  to  regard  trans- 
portation charges  as  unreasonably  high.  The 
quality  of  railroad  service  was  not  of  the  standard 
demanded.  The  railroads  were  charged  with  re- 
sponsibility for  holding  back  a  revival  of  business 
by  excessive  freight  rates.  The  public  in  general 
could  not  understand  why  the  railroads  had  not 
been  able  to  convince  the  Railroad  Labor  Board 
that  wages  in  the  period  of  post-war  deflation 
should  be  reduced  as  they  were  being  reduced  by 
other  employers.  Nor  could  the  general  public 
understand  why  the  railroads  continued  to  plead 
poverty  when  they  were  enjoying  rates  which  had 
been  increased  25%  in  1918  and  about  35%  in 
1920. 

The  spokesmen  for  the  agricultural  organiza- 
tions sought  to  blame  the  railroads  for  the  sorry 
plight  of  the  farmers,  and  the  agricultural  bloc 
in  Congress  attempted  to  cut  the  heart  out  of  the 
Transportation  Act  by  repealing  its  rate-making 
rule.  The  spokesmen  for  the  individual  states 
advocated  an  effective  limitation  on  the  right  of 
the  federal  commission  to  regulate  rates  within 
the  states.  The  labor  leaders  and  their  statisti- 
cal experts,  in  an  effort  to  discredit  private  man- 
agement, and  to  influence  the  Labor  Board  in  con- 
sidering the  pending  petitions  from  the  railroads 
for  reductions  in  wages  and  elimination  or  modifi- 
cation of  restrictive  rules,  made  serious  charges 


270  AMERICAN   RAILROADS 

against  the  honesty  and  efficiency  of  manage- 
ment.* Propaganda  on  a  large  scale  was  used 
to  poison  the  minds  of  the  employees  against  the 
companies  and  to  promote  a  sentiment  favorable 
to  the  Plumb  Plan  for  the  '' democratization  of  in- 
dustry." In  short,  public  opinion,  which  for  a 
time  had  been  sympathetic  toward  private  man- 
agement, began  to  be  critical,  and  in  some  sections 
actually  hostile.  Added  to  their  problems  of 
labor  relations,  deferred  maintenance,  diminished 
traffic  and  depleted  income,  the  railroad  execu- 
tives had  the  problem  of  strained  public  relations. 

Unfortunately  this  was  not  generally  well 
handled.  The  Association  of  Railroad  Execu- 
tives, through  its  publicity  department,  and  a  few 
individual  roads,  endeavored  to  put  the  facts  be- 
fore the  public,  but  the  information  actually 
reached  but  a  small  proportion  of  the  public  in- 
fluenced by  anti-railroad  agitation.  Qualitatively, 
the  publicity  of  the  Association  could  not  be  criti- 
cized; quantitatively  it  fell  short,  and  it  should 
have  been  backed  up  by  the  local  officers  of  the  in- 
dividual railroads  in  their  day-to-day  contact  with 
the  public. 

There  were  wide  differences  in  opinion  among 
the  managements  of  the  individual  companies  as 
to  what  should  be  done  in  the  field  of  publicity. 
One  group  of  executives  held  the  view  that  it 
was  their  duty  to  do  all  that  reasonably  could  be 

*The  Interstate  Commerce  Commission  in  its  rate  decision  of 
May  16,  1922  (68  I.  C.  C.  676)  found  that  railroad  management 
as  a  whole  was  reasonably  efficient. 


AMERICAN  RAILROADS  271 

done  to  meet  all  charges  and  to  state  the  facts 
fnlly  and  frankly.  Distasteful  though  it  might  be 
personally,  they  felt  obliged  on  the  one  hand  to 
n)ake  an  earnest  effort  to  inform  that  part  of  the 
public  which  welcomes  light  on  both  sides  of  a 
controversy,  and  on  the  other  hand  aggressively 
to  expose  the  motives  of  unfair  critics  who  made 
false  or  misleading  statements. 

Another  group  of  railroad  executives  took  the 
ground  that  no  good  could  come  from  individual 
or  large-scale  efforts  to  meet  unfair  or  misleading 
charges.  They  held  that  the  function  of  a  rail- 
road manager  was  to  operate  the  railroad  eiS- 
ciently  so  as  to  give  good  service  and  that  his  mind 
should  not  be  distracted  in  that  difficult  task  by 
irresponsible  and  selfish  criticism,  a  large  part  of 
which,  at  least  in  the  minds  of  thinking  people, 
carried  its  ow^n  answer. 

Between  these  two  groups  was  a  large  number 
of  managers  who  adopted  a  middle-of-the-road 
policy.  While  not  aggressive  in  their  defense, 
and  while  not  seeking  opportunities  to  press  their 
views,  they  took  favorable  occasion  to  give  pub- 
licity to  the  facts  as  they  saw  them  and  were 
ready  to  meet  a  challenge  when  directly  given. 
Ordinarily  such  publicity  was  local  in  scope  and 
was  a  defense  of  the  individual  road  rather  than 
of  railroad  management  as  a  whole.  Such  was 
the  policy  of  the  Pennsylvania  and  the  Illinois 
Central  systems.  Other  roads  adopted  it  on  a 
somewhat  smaller  scale. 

Yet,  on  the  whole,  notwithstanding  the  efforts 
of  the  first  and  the  third  group  of  individual 


272  AMERICAN   RAILROADS 

roads,  and  the  large-scale  publicity  of  the  Asso- 
ciation of  Railway  Executives,  the  defense  of  the 
railroads  against  the  wide-spread  charges  of  their 
critics  was  not  adequately  i)ut  before  the  public. 
The  work  was  not  sufficiently  diffused.  The  be- 
lief was  widely  held  that  the  railroads  were 
operating  under  a  guarantee  from  the  Govern- 
ment which  would  give  them  6%  on  their  capital 
stock.  Needless  to  say  the  railroads  enjoy  no 
guarantee  of  any  kind,  and  the  statutory  rate  of 
return  aimed  at  (but  not  assured)  in  the  Trans- 
portation Act  a])])lics  to  the  roads  in  gi'oups,  not 
to  the  individual  companies.  Besides,  the  rate- 
making  rule  relates  to  property  value  and  has  no 
reference  to  capitalization.  It  is  believed  by  many 
that  the  railroad  officers,  while  in  the  service  of 
the  Government  during  the  period  of  federal 
control,  deliberately  conspired  to  increase  costs 
and  otherwise  to  discredit  governmental  opera- 
tion. The  author  was  in  a  position  to  know  the 
facts  and  can  state  with  assurance  that  there  was 
no  ground  for  the  charge  so  often  then  made  and 
now  often  repeated  by  spokesmen  for  those  who 
favor  the  Plumb  Plan  or  nationalization.  Too 
many  of  the  public  accepted  as  true  the  charge 
that  interlocking  directorates  controlled  the  pur- 
chasing agents  of  the  individual  railroads  and 
forced  them  to  purchase  equipment  and  supplies 
at  prices  higher  than  could  have  been  had  if  such 
influence  had  not  been  present.  Here,  too,  the 
author  knows  from  personal  knowledge  that  no 
such  influence  w;is  or  is  exerted  on  the  typical 
railroad.     It  is  widely  believed  by  the  general 


AMERICAN  RAILROADS  273 

public,  and  particularly  by  railroad  employees, 
that  a  gigantic  conspiracy  existed  (and  now 
exists)  among  Wall  Street  financiers  which  crip- 
ples the  local  managers  in  the  conscientious 
administration  of  the  properties.  While  it  is  true 
that  maintenance  programs,  betterments  and  pur- 
chases of  new  equipment  must  be  cut  according 
to  the  available  financial  cloth,  and  that  the  finan- 
cial headquarters  of  a  substantial  number  of 
railroads  are  in  New  York  City,  it  is  not  true  that 
on  the  typical  road  the  New  York  financiers  con- 
trol or  interfere  with  local  management  in  the 
conduct  of  operations  other  than  in  formulating  a 
general  financial  policy  in  harmony  with  the  earn- 
ing power  and  credit  of  the  individual  corpora- 
tion. 

These  misconceptions  growing  out  of  misrep- 
resentations and  half-truths  disseminated  by 
those  who  are  honestly  opposed  to  the  corporate 
form  of  railroad  control,  or  by  those  who  are 
selfishly  or  professionally  actuated  by  a  desire  to 
discredit  railroad  mana,i>-emeiit  so  that  Govern- 
ment ownership  or  the  Plumb  Plan  may  take  the 
place  of  private  management,  are  cited  merely  as 
illustrations  of  misrepresentation  which  the  rail- 
roads should  correct.  Tlie  list  might  be  indefin- 
itely extended,  but  the  few  instances  will  here 
serve  as  well  as  many.  Such  charges,  as  well  as 
those  which  truthfully  rellect  upon  the  manage- 
ment of  the  railroads  generally  or  upon  the 
actions  of  individual  officers,  should  be  completely 
answered  by  the  facts.  During  1921,  when  they 
had  a  bearing  upon  the  insistent  demands   for 


274  AMERICAN   RAILROADS 

rate  reductions,  when  the  railroads  were  earning 
but  little  more  than  one-half  of  the  statutory  rate 
of  return  on  property  value,  it  was  particularly 
important  that  the  public  should  have  been  taken 
fully  into  conlidence  and  not  misled  by  failure  to 
see  or  hear  a  complete  and  frank  answer.  On  the 
part  of  the  railroads  there  was  a  failure,  generally 
speaking,  in  not  keeping  a  finger  locally  upon  the 
pulse  of  public  opinion. 

What  was  then  needed,  and  what  is  now  needed, 
is  a  decentralization  of  railroad  publicity.  There 
is  room  for  centralized  effort  on  a  small  scale 
when  special  opportunity  offers,  but  the  really 
effective  results  come  from  the  local  touch  be- 
tween the  ofhcers,  agents  and  employees  of  the 
indi\^dual  road  with  the  local  public  which  it 
serves.  This  is  not  to  say  that  the  executive  offi- 
cers of  a  railroad  should  undertake  barnstorming 
expeditions,  nor  neglect  their  more  important 
duties  for  speech-making.  They  may  reserve 
their  statements  for  large  audiences,  but  each 
president  should  insist  upon  the  painstaking 
carrying  out  of  a  policy  of  taking  the  public  com- 
pletely into  confidence  through  local  contact  by 
subordinate  oihcers.  This  assumes,  of  course, 
that  the  policy  includes  also  a  plan  under  which 
these  subordinate  officers  are  kept  fully  informed. 
It  is  a  mistake  to  assume  that  it  is  useless  to  an- 
swer incorrect  or  misleading  charges.  Failure  to 
answer  may  be  mistakt'ii  as  pioof  that  the  charges 
are  well  founded.  The  facts  should  be  placed 
fully  and  frankly  before  the  thinking  and  open- 
minded  public.    Fortunately,  the  majority  of  the 


AMERICAN  RAILROADS  275 

public  is  of  that  type.  It  hears  much  in  criticism 
of  the  railroads ;  it  hears  too  little  of  the  answer. 
The  foregoing  discussion  of  public  relations 
leads  naturally  into  a  subject  somewhat  similar  in 
nature — the  change  in  attitude  toward  railroad- 
ing as  a  career  for  ambitious  men. 

Two  tendencies  have  recently  been  apparent  in 
railroad  organization.  Here  and  there  through- 
out the  country  we  read  of  men,  who  have  been 
prominent  and  successful  as  executives  in  trans- 
portation, transferring  to  other  forms  of  corpo- 
rate activity.  The  number  is  not  large  but  the 
tendency  is  unmistakable.  The  second  tendency 
is  for  college-trained  men  to  pass  by  the  railroad 
field  in  preparing  for  and  finally  deciding  upon 
their  life  work.  The  railroads,  therefore,  are 
losing  some  of  their  best  executive,  traffic,  engi- 
neering and  operating  experts,  and  they  are  not 
attracting  the  type  of  young  man  best  fitted  by 
general  and  specialized  education  to  develop  into 
broad-minded  and  resourceful  officers.  These 
ten'dencies,  if  not  checked,  will  have  a  demoral- 
izing effect  upon  railroad  organization. 

The  reason  for  the  change  in  attitude  on  the 
part  of  some  of  the  railroad  general  officers,  and 
the  lack  of  confidence  on  the  part  of  the  younger 
generation  in  transportation  as  a  field  of  oppor- 
tunity, are  easily  found.  The  men  who  have 
grown  up  in  the  railroad  business,  and  have  at- 
tained recognition  as  successful  managers,  are 
chafing  under  the  increasing  restrictions  upon 
personal  initiative.     There  is  now  much  smaller 


276  AMERICAN  RAILROADS 

play  for  individuality  than  in  the  period  when 
they  attained  their  early  successes.  A  large  part 
of  the  joy  in  the  work  has  been  taken  out  because 
of  the  steady  transfer  of  authority  from  manage- 
ment to  commissions  and  boards.  The  Interstate 
Commerce  Commission  and  the  State  Commis- 
sions control  the  revenues  and  now  have  wide 
powers  over  operating  methods.  The  Labor 
Board  establishes  the  rates  of  pay  and  determines 
the  conditions  of  employment. 

Then  there  is  the  widespread  criticism  of  the 
salaries  of  railroad  executives.  It  is  difficult  for 
them  to  understand  why  the  responsible  head  of 
a  large  public  service  corporation  should  be 
pilloried  because  he  receives  from  $35,000  to 
$50,000*  per  year,  when  his  personal  friends  who 
are  executives  of  large  industrial  concerns,  and 
who  carry  lighter  loads  of  responsibility,  are  paid 
much  more  and  are  held  in  esteem  because  they 
can  command  such  large  salaries.  The  public 
appears  to  be  quite  ^^illing  that  Charlie  Chaplin 
should  receive  $1,000,000  per  year  for  his  con- 
tributions to  the  mirth  of  the  movies,  yet  they  find 
fault  because  the  president  of  a  railroad  com- 
pany, employing  100,000  men  and  representing 
an  investment  of  hundreds  of  millions  of  dollars 
devoted  to  public  service,  is  paid  $50,000.  This 
public  criticism  of  salaries,  coupled  with  the  loss 
of  opportunity  for  the  exercise  of  personal 
initiative  in  management,  has  placed  a  few  of  the 
railroad  executives  in  a  receptive  frame  of  mind 

*The   number    of    railroad    presidents    who    receive    more    than 
$50,000  per  year  is  exceedingly  small. 


AMERICAN  RAILROADS  277 

when  approached  by  industrial  concerns  mth 
offers  of  greater  salaries  in  a  field  Avhere  there 
is  greater  opportunity  for  the  free  play  of 
managerial  talent. 

The  factors  which  discourage  the  individualistic 
type  of  railroad  manager  have  a  bearing  also 
upon  the  disinclination  of  ambitious  young  men 
to  enter  railroad  service.  They  see  greater  re- 
wards and  greater  certainty  of  advancement  in 
other  industries.  Besides  they  know  that  labor 
union  influence  has  erected  barriers  which  make  it 
difficult  for  them  to  obtain  the  diversity  of  experi- 
ence which  is  a  necessary  training  for  managerial 
positions,  and  they  resent  the  fact  that  so  far  as 
the  college-trained  man  is  concerned  the  railroads 
do  not  encourage  the  specially  educated  man  to 
enter  the  service. 

Except  in  a  few  notable  instances,  such  as  that 
of  the  Pennsylvania  Railroad,  the  proportion  of 
college  men  among  railroad  officials  is  small.  The 
great  majority  are  graduates  of  the  school  of 
practical  experience.  They  are  inclined  to  over- 
estimate the  value  of  years  of  training  in  routine 
and  to  underestimate  the  value  of  University 
training  in  which  the  young  man,  in  his  most  im- 
pressionable years,  is  taught  to  reason  and  to 
apply  principles.  It  must  be  admitted  that  the 
experience  with  some  college  graduates  has  been 
disappointing,  and  that  a  substantial  proportion 
are  so  overambitious  as  to  be  impatient  of  routine 
and  to  chafe  under  slow  advancement.  Some  of 
them  also  have  an  exaggerated  conception  of  the 
value  of  their  college  education,  and  they  make 


278  AMERICAN  RAILROADS 

slips  which  bring  ridicule.  The  tendency  among 
the  typical  divisional  and  general  oflQcers  of  rail- 
roads is  to  require  the  college  graduate  to  go 
through  exactly  the  same  routine  training  as  that 
of  a  grammar  school  boy,  and  to  give  little  oppor- 
tunity for  the  college-trained  men  to  demonstrate 
the  worth  of  his  better  mental  training.  As  a 
result,  a  large  part  of  the  college-trained  men  who 
enter  railroad  service  become  discouraged,  and 
many  of  them  make  changes  which  are  to  their 
personal  betterment.  There  is  an  inclination 
among  railroad  officers,  however,  to  place  the 
blame  upon  the  young  man  instead  of  upon  the 
management. 

This  failure  to  recognize  the  need  for  attract- 
ing the  best  type  of  man  into  the  service,  and  the 
lack  of  interest  in  those  who  spend  from  four  to 
seven  of  their  best  years  in  college  or  graduate 
school  preparation  for  their  life  work,  is  shown 
in  the  failure  of  the  railroads  generally  to  adopt 
the  practise  of  many  large  and  successful  indus- 
trial corporations  of  having  scouts  to  size  up  the 
graduating  classes  and  recruit  likely  material. 
Many  concerns  have  standing  orders  with  the  best 
schools  for  a  stated  number  of  men  each  year. 
These  concerns  recognize  the  need  of  attracting 
annually  a  limited  number  of  young  men  of  that 
type  to  work  with  men  of  the  same  age  who  have 
grown  up  in  the  business  since  their  grammar 
school  or  high  school  days,  and  whose  natural 
abilities  have  marked  them  for  promotion.  A 
judicious  mixture  of  the  two  types,  loosely  de- 
fined as  the  practical  and  the  theoretical,  usually 


AMERICAN  RAILROADS  279 

brings  excellent  results,  as  each  type  is  broad- 
ened by  competitive  contact  mth  the  other. 

"With  the  railroads,  however,  the  companies 
which  have  adopted  any  settled  policy  in  attract- 
ing promising  men  to  their  service  are  so  few  as 
to  be  noteworthy.  Both  in  engineering  and  in 
operation,  as  well  as  in  traffic,  accounting,  finance 
and  law,  no  steps  are  taken,  generally  speaking, 
to  compete  with  other  lines  of  business  for  the 
pick  of  the  university  output.  The  general  atti- 
tude is  that  the  graduate  must  come  to  the 
railroad  hat  in  hand ;  the  railroads  will  not  go  to 
the  universities.  The  result  is  that  the  railroad 
engineering  courses,  both  civil  and  mechanical,  in 
the  technical  schools,  are  appealing  each  year  to 
a  relatively  smaller  number  of  men,  and  the  stu- 
dents who  choose  the  general  courses  in  transpor- 
tation economics  or  the  specialized  courses  in 
operation,  traffic  or  accounting,  take  these  courses 
and  plan  to  enter  railroading  in  spite  of  the  dis- 
couragements, or  because  the  courses  will  be  of 
value  to  them  as  industrial  managers,  accoun- 
tants, la^\yers  or  traffic  managers  in  their  relations 
with  the  railroad  companies  and  the  governmental 
regulating  bodies. 

It  may  be  said  with  truth  that  the  wonderful 
development  and  achievements  in  railroad  trans- 
portation in  this  country  since  1830  until  within 
the  past  few  years  are  to  be  credited  in  greater 
part  to  men  with  comparatively  limited  education, 
and  that  among  a  list  of  100  leading  railroad  ex- 
ecutives of  today  not  more  than  10  or  20  are 
college  graduates.    The  same  statement  will  hold 


280  AMERICAN   RAILROADS 

true  in  nearly  all  lines  of  industrial  and  com- 
mercial activity.  But  times  have  changed.  The 
importance  and  the  value  of  a  broad  educational 
foundation,  upon  which  to  superimpose  the  neces- 
sary practical  and  intensive  experience,  are  uni- 
versally recognized,  but  the  degree  of  recognition 
is  markedly  less  in  railroads  than  in  other  busi- 
nesses. 

This  is  partly  a  reflex  of  labor  union  opposition. 
Seniority  is  a  cardinal  principle  in  the  labor  pro- 
gram. Length  of  service  rather  than  ability  and 
fitness  is  held  to  be  the  controlling  factor  in  pro- 
motion. It  is  dillicult  for  the  specially  trained 
man  to  advance  through  the  usual  channels  be- 
cause of  the  restrictions  of  seniority  and  the  other 
barriers  set  against  selection  according  to  merit 
and  exceptional  service. 

On  every  railroad  there  are  young  men  of  ex- 
ceptional ability,  with  and  without  college 
training,  who  should  be  promoted  ahead  of  other 
men  of  mediocre  ability.  Yet  because  the  medi- 
ocre man  is  older  in  years  of  service  he  must 
receive  the  first  call.  The  responsible  operating 
ofHcial  is  well  aware  that  the  best  interests  of  the 
service  demand  the  selection  of  the  man  with  the 
greater  ability,  but  the  hands  of  the  management 
are  tied.  Every  attempt  to  discriminate  on  the 
basis  of  merit  rather  than  of  seniority  alone  is 
bitterly  opposed  by  the  labor  organizations.  The 
railroad  ofBcial,  therefore,  against  his  better 
judgment,  feels  that  he  must  follow  the  lines  of 
least  resistance.  And  indeed  in  most  cases  the 
agreements  inherited  from  federal  control,  and 


AMERICAN  RAILROADS  281 

continued  by  the  Railroad  Labor  Board,  give  the 
manag'enK'iit  no  choice  whatcnor.  The  result  is 
that  among  the  rank  and  file  there  is  little  incen- 
tive to  excel,  and  the  niaiiagenient  has  little  op- 
portunity for  organizing  promising  material  for 
managerial  understudies. 

If  the  railroads  are  to  liold  to  their  cieditable 
record  for  efficiency  up  to  recent  years,  there 
must  be  a  change  in  the  public  attitude  toward 
railroad  management  so  that  those  now  in  execu- 
tive positions,  and  the  younger  group  of  under- 
studies, shall  not  be  further  discouraged  and 
transfer  to  othei-  fields.  There  must  be  a  greater 
degree  of  recognition  on  the  part  of  railroad  offi- 
cers of  the  necessity  for  competing  with  other 
lines  of  business  in  appealing  to  the  educated 
young  man.  And  there  nuist  be  a  modification  of 
the  seniority  and  other  working  rules  which  now 
block  the  recognition  of  special  merit  and  fitness 
as  the  controlling  element  in  the  selection  of  men 
for  positions  of  official  responsibility.  Each  of 
these  conditions  is  difficult  to  change.  The  ideal  is 
practically  unattainable. 

It  is  possible,  however,  for  the  railroad  man- 
agers to  adopt  and  make  effective  a  definite  policy 
which  would  attract  ambitious  and  educationally 
qualified  men  to  railroad  service.  If  labor  union 
influence  coiitinues  to  prevent  any  discrimination 
which  will  make  it  possible  for  them  to  get  their 
routine  training  in  the  usual  way,  something  of 
the  nature  of  a  cadet  system  should  be  tried.  Its 
merits    far    outweigh    its    defects.      Candidates 


282  AMERICAN   RAILROADS 

should  be  selected  both  Iroiii  the  ranks  and  from 
college  graduates,  the  young  men  already  in  the 
service  to  receive  the  lirst  call.  Such  a  i)laii 
would  insure  free  competition  between  the  col- 
lege man  and  one  who  has  equal  natural  ability 
developed  in  practical  service.  Cadets  after 
selection  should  be  held  to  rigorous  standards 
and  the  weakest  sliouhl  be  weeded  out  in  the  early 
stages.  A  plan  such  as  this  would  encourage  the 
ambitious  in  the  service  to  excel  and,  because  it 
offers  something  definite  in  the  assurance  of  pro- 
motion when  earned,  it  would  attract  a  greater 
number  of  college  men.  The  danger  of  class  feel- 
ing, which  would  result  if  the  cadets  were  com- 
posed entirely  of  college  men,  would  be  minimized. 

A  procedure  of  this  sort  would  be  actively  op- 
posed by  the  labor  unions.  They  are  doing  all 
that  they  can  to  extend  their  jurisdiction  over  the 
foremen  and  other  siil)ordiiiate  officials.  The  plan 
may  be  considered  unworkable  by  many  railroad 
officials.  But  there  is  nothing  original  in  the 
idea.  Something  of  the  kind  has  been  tried  on  a 
few  roads,  sometimes  with  success — sometimes 
with  poor  results.  In  the  latter  cases  the  failure 
was  caused  in  the  main  by  defects  in  administra- 
tion. In  no  one  case,  however,  has  such  a  plan 
had  a  fair  and  complete  trial. 

In  the  foregoing  discussion  of  the  discourage- 
ments of  the  railroad  executive  it  is  not  the 
intention  to  overemphasize  the  ])resent  restric- 
tions upon  individuality  and  initiative.  Compared 
with  earlier  years,  when  railroad  officers  had  too 


AMERICAN  RAILROADS  283 

much  power  which  was  often  wielded  with  injus- 
tice to  the  public,  to  employees  and  to  security 
holders,  the  changes  are  profound.  The  pendulum 
has  now  swung-  to  the  other  extreme.  Yet  because 
the  job  is  harder,  and  because  it  is  not  as  easy  to 
make  a  spectacular  showing  in  results,  railroad 
service  still  has  attractions  for  those  who  delight 
in  tackling  the  difficult  task.  It  still  has  a  greater 
fascination  than  most  lines  of  industrial  or  com 
mercial  work.  It  is  a  form  of  public  service  in 
which  there  is  satisfaction  in  work  well  done  oi 
in  difficulties  surmounted.  While  as  salaries  go, 
the  railroads  do  not  offer  as  substantial  induce- 
ments as  industry  and  commerce,  yet  transi)orta- 
tion  work  will  continue  to  appeal  to  many  who 
put  the  love  of  the  job  ahead  of  the  pay  envelop. 
Notwithstanding  the  clause  in  the  Transportation 
Act  which  takes  away  from  the  individual  com- 
panies one-half  of  the  earned  net  income  in  excess 
of  the  statutory  rate  of  return  for  the  carriers  as 
a  whole,  and  notwithstanding  the  possibilities  of 
further  dilution  of  income  by  the  absorption, 
under  public  pressure,  of  roads  of  low  earning 
power,  there  still  remains  a  reward  for  efficiency 
in  management.  The  field  for  extensive  achieve- 
ment has  been  fairly  well  tilled,  but  there  are  still 
many  opportunities,  in  the  present  state  of  the 
art  of  railroad  management,  for  intensive  rail- 
road progress  in  operating  economies,  in  traffic 
development,  in  unification  of  facilities,  or  in  im- 
proving relations  with  labor,  which  offer  sufficient 
reward  in  personal  satisfaction  and  in  corporate 


284  AMERICAN  RAILROADS 

income  to  justify  the  highest  order  of  intelligent 
effort. 

The  Eailroad  Labor  Board  was  unusually  ac- 
tive during  the  first  half  of  1922  and  handed  down 
several  important  decisions  which  had  the  effect 
of  reducing  payroll  expense,  either  in  decreasing 
wage  rates  or  in  modifying  working  rules.  These 
orders  affected  nearly  every  class  of  employee 
except  the  train  and  yard  service  brotherhoods.* 
In  a  general  way,  except  for  these  brotherhoods, 
the  rate  reductions  of  1921  and  the  early  part  of 
1922  brought  the  wage  scale  to  a  level  approximat- 
ing that  in  effect  at  the  end  of  federal  control  and 
before  the  Labor  Board  ordered  its  general  in- 
crease of  May,  1920. 

While  this  is  being  written,  in  July,  1922,  the 
shop  crafts  are  on  strike  against  the  July  1,  1922, 
reduction  in  wages  and  modification  of  certain  re- 
strictive rules.  The  action  of  the  men  was  in- 
fluenced also  by  two  additional  issues.  Certain 
railroads,  in  order  to  escape  a  part  of  the  addi- 
tional costs  of  the  relatively  high  wage  rates  and 
burdensome  rules  applying  to  the  shop  crafts, 
made  contracts  with  outside  shops,  under  which 
a  part  of  maintenance  work  on  locomotives  and 
cars  was  done  at  lower  labor  costs  than  obtained 
in  the  railroad  shops.  In  some  cases  these  out- 
side repair  establishments  were  virtually  auxili- 
ary to  the  railroad  company,  but,  as  they  were 
not  bound  by  the  Labor  Board  rulings,  they  could 

*See  Chapter  XXIII,  page  263. 


AMERICAN  RAILROADS  286 

take  advantage  of  the  lower  wage  rates  and  more 
favorable  working  rules  Avhich  applied  in  indus- 
tries outside  of  railroads.  A  very  few  railroads 
had  applied  the  same  principle  to  track  mainte- 
nance and  freight  house  labor.  Essentially  this 
contract  system  was  an  evasion  of  the  Labor 
Board's  jurisdiction  and,  even  though  it  may  have 
been  legally  sound,  its  expediency  was  decidedly 
questionable.  The  Labor  Board  had  found  the 
practise  to  be  objectionable  and  had  called  upon 
the  railroads  to  stop  it.  Some  of  the  few  rail- 
roads affected  complied  with  the  order;  others 
decided  to  test  the  issue  in  the  courts.  They  held 
that  as  the  Transportation  Act  imposed  upon  rail- 
road management  the  obligation  to  operate  the 
properties  honestly,  efficiently  and  economically, 
they  were  bound  to  avail  themselves  of  oppor- 
tunities such  as  contract  work  in  order  to  keep 
down  the  cost  of  maintenance  and  operation.  It 
is  doubtful,  however,  whether  the  ultimate  cost  of 
contract  work,  including  the  additional  overhead 
charges  which  resulted  in  certain  duplications  of 
plant  and  equipment,  was  actually  lower  than  the 
cost  of  doing  the  work  in  the  usual  manner,  and  in 
any  event  it  gave  the  employees  the  opportunity 
to  raise  the  issue  of  bad  faith  and  to  use  it  as 
justification  upon  their  part  in  refusing  to  abide 
by  the  rulings  of  the  Board.  There  is  little  doubt 
that  the  railroads  affected  never  intended  that  the 
contract  system  should  be  permanent,  and  that 
they  will  gladly  eliminate  the  issue  in  the  con- 
troversy by  abrogating  the  contracts  now  that 
the  wages  of  shopmen  have  been  reduced  and  some 


286  AMERICAN   RAILROADS 

of  the  unreasonable  rules  eliminated  by  the  Labor 
Board. 

The  second  subsidiary  issue  in  the  shopmen's 
strike  was  that  of  failure  to  establish  national 
adjustment  boards.  This  subject  has  already 
been  discussed  in  detail.*  Inasmuch  as  the  shop 
crafts  had  refused  to  be  party  to  the  creation 
of  l)oards  of  adjustment  unless  they  were  na- 
tional in  scope,  and  the  railroads  had  insisted 
upon  local  boards  on  each  system,  the  deadlock 
had  continued  and  no  adjustment  boards  had  been 
formed.  It  is  probable  that  a  compromise  will 
be  effected  under  which  regional  boards  will  be 
created. 

This  is  the  first  actual  strike  against  the  ac- 
ceptance of  an  award  by  the  Railroad  Labor 
Board.  It  is  fraught  with  serious  possibilities, 
both  in  its  immediate  effect  upon  the  relations 
between  the  railroads  and  their  employees  and 
between  both  of  these  interests  and  the  Labor 
Board.  The  principle  of  large-scale  arbitration 
in  railroad  labor  disputes  is  in  danger.  If  the 
strike  is  successful  from  the  viewpoint  of  the 
shopmen,  it  may  destroy  the  effectiveness  of  the 
labor  relations  section  of  the  Transportation  Act. 

The  country  has  not  yet  recovered  from  the 
demoralizing  influences  of  war.  In  the  after- 
math of  the  unloosening  of  passion  in  armed  con- 
flict came  a  distinct  lowering  in  national  respect 
for  law  and  order.  The  tendency  has  been  for 
individuals,  groups  and  classes  to  become  a  law 

*See  Chapter  XXII. 


i 


AMERICAN  RAILROADS  287 

unto  themselves.  This  tendency  has  not  been 
peculiar  to  any  one  class,  bnt  because  of  the  rel- 
atively large  number  of  citizens  who  belong  to 
or  are  affiliated  indirectly  with  labor,  it  has 
seemed  that  labor  emerged  from  the  war  with 
exaggerated  class  consciousness  and  that,  m  re- 
sisting the  inevitable  reaction  of  deflation,  it  has 
been  unreasonable  in  its  attitude  toward  the  rights 
of  others.  Labor  appears  to  have  been  less 
amenable  to  law  and  authority,  even  to  the 
authority  vested  in  its  own  leaders,  than  at  any 
time  in  American  history,  and  the  whole  country 
has  been  seething  with  a  spirit  akin  to  that  which 
has  overthrown  the  normal  order  of  things  m 
Europe.  The  leaders  of  labor  are  forced  to  be 
radical,  else  they  will  be  thrown  out  and  su- 
perseded by  other  leaders  of  the  radical  type. 

Yet  this  state  of  affairs  cannot  continue. 
Gradually  the  national  conscience  mil  reassert 
itself  and  class  consciousness  will  be  less  ap- 
parent. As  conditions  become  normal  the  acute 
strife  now  existing  between  employer  and  em- 
ployee will  lose  its  bitterness.  Their  respective 
viewpoints  will  always  be  different,  but  much  of 
the  present  distrust  and  antagonism  mil  eventu- 
ally yield  to  the  spirit  of  fair  play. 

The  tvpical  railroad  manager  of  today  realizes 
that  under  the  existing  law,  which  reflects  the 
general  state  of  public  opinion,  he  is  a  public 
trustee  charged  with  responsibility  for  operating 
a  public  utility.  His  former  powers  of  dictating 
practicallv  all  of  the  terms  of  employment  have 


288  AMERICAN  RAILROADS 

been  taken  away  from  him  and  transferred  to  a 
governmental  tribunal  in  which  his  interests  are 
represented.  Just  as  it  has  taken  more  than  30 
years  to  develop  the  machinery  of  federal  rate 
regulation,  it  will  x^robably  require  years  for  the 
Tjabor  Board  to  develop  into  an  effective  agency 
for  the  restoration  and  maintenance  of  amicable 
and  efficient  relations  between  railroad  manage- 
ment and  employees. 

Just  now,  in  these  trying  times  of  deflation  and 
subnormal  business,  the  outlook  for  permanent 
peace  is  not  bright,  but  it  will  change  as  each  side 
to  the  controversies  becomes  more  willing  to  fol- 
low the  principles  of  fair  play.  On  the  part  of 
management  there  must  be  a  greater  and  un- 
grudging recognition  of  the  principle  of  partner- 
ship with  labor,  fair  wages  and  fair  working  con- 
ditions. On  the  part  of  labor,  in  return  for  fair 
wages  and  fair  Avorking  conditions,  there  must  be 
a  A\illingiies8  to  give  a  fair  degree  of  working 
efficiency.  The  existing  law  provides  for  the 
judicial  determination  of  what  the  worker  is  en- 
titled to  and  what  the  railroads,  and  ultimately 
the  general  public,  shall  pay.  The  Board  should 
be  given  a  fair  trial.  Its  findings  should  be  ac- 
cepted and  observed  in  good  faith  by  employers 
and  employees  alike.  As  normal  conditions  re- 
turn there  should  be  no  reason  why  the  decisions 
of  the  Board  should  not  be  accepted,  just  as  the 
decisions  of  the  Interstate  Commerce,  Commission 
are  accepted  in  controversies  between  the  rail- 
roads and  the  shippers. 


AMERICAN  RAILROADS  289 

Problems  of  a  financial  nature  were  reserved 
for  the  concluding  portion  of  this  final  chapter. 
As  has  already  been  stated  practically  all  other 
problems  are  interlocked  with  those  of  finance. 
Essentially  they  are  all  a  problem  of  credit.  Rail- 
road credit  has  been  seriously  impaired  in  the 
case  of  the  stronger  roads,  and  has  practically 
disappeared  in  the  case  of  the  weak  companies. 
The  investor,  once  eager  to  put  his  money  into 
railroad  securities  on  terms  which  denoted  con- 
fidence, has  now  turned  to  industrial  and  other 
securities.  New  railroad  capital  may  be  had 
only  at  interest  rates  which  are  relatively  high, 
and  refunding  issues  of  bonds  must  be  offered  at 
terms  which  to  the  investor  are  much  more  favor- 
able than  those  of  the  retired  securities. 

Eailroad  credit  is  a  reflex  of  earning  power. 
As  long  as  earning  power  is  uncertain,  the  rail- 
roads will  have  difficulty  in  securing  additional 
capital.  When  earning  power  is  assured,  credit 
will  be  correspondingly  improved  and  the  needed 
funds  may  be  had  on  reasonable  terms. 

It  has  already  been  pointed  out  that  the  normal 
program  of  additions  and  betterments,  and  the 
replacement  of  old  equipment  by  units  of  modern 
design,  was  arrested  about  1910,  almost  ceased 
in  1915,  and  since  then  has  been  prosecuted  on  a 
very  limited  scale.  An  enormous  amount  of 
necessary  work  has  been  deferred.  The  addi- 
tions and  improvements  in  facilities  and  equip- 
ment which  normally  would  have  been  provided 
during  the  past  10  or  15  years  will  be  imperatively 
necessary  when  the  period  of  reconstruction  has 


290  AMERICAN  RAILROADS 

been  weathered  and  the  country  enters  upon  the 
belated  upward  swing  in  the  business  cycle.  The 
additional  railroad  traffic  which  will  come  from 
greater  industrial  and  commercial  activity  will 
bring  additional  revenues.  These  should  assist 
in  restoring  credit,  but  that  greater  volume  of 
traffic  will  probably  exceed  the  economical  capa- 
city of  many  of  the  individual  systems  which  have 
fallen  behind  in  their  normal  rate  of  improve- 
ments. Many  railroads  are  in  the  embarrassing 
position  that  their  financial  salvation  depends 
upon  a  greater  volume  of  business,  yet  a  traffic 
load  wliicli  would  restore  their  earning  power 
sufficiently  to  revive  their  credit  cannot  be  handled 
satisfactorily  until  their  traffic  capacity  has  been 
increased.  And  their  capacity  cannot  be  in- 
creased until  their  earning  power  makes  possible 
the  raising  of  new  capital. 

Before  the  period  of  the  war  the  normal  growth 
in  ton-miles  for  the  country  as  a  whole  by  decades 
was  at  the  rate  of  about  SYs  %  per  year.  In  other 
words,  the  volume  of  tonnage  doubled  in  every 
12  years.  The  development  in  tonnage  has  been 
thrown  out  of  gear  by  the  depression  of  1921,  but 
the  present  signs  are  that  there  will  be  a  sub- 
stantial business  revival  in  the  near  future.  Eail- 
road  carrying  capacity  was  severely  taxed  by  the 
record  movement  of  the  fall  of  1920.  Since  then 
there  have  been  relatively  few  extensions  or  en- 
largements of  facilities,  and  the  replacements  of 
old  equipment  have  not  been  sufficient  to  keep  up 
normal  standards  or  capacity. 


AMERICAN  RAILROADS  291 

Various  estimates  have  been  made  as  to  what 
the  railroads  will  be  required  to  spend  in  addi- 
tional facilities  and  equipment  in  the  immediate 
future  to  put  the  transportation  systems  m  shape 
to  take  care  of  the  expected  heavier  traffic  load. 
A  conservative  estimate  is  $1,000,000,000  per  year 
for  several  years.  The  late  James  J.  HUl  used 
that  figure  more  than  10  years  ago.  It  can  hard- 
ly be  less  now,  with  higher  construction  costs  and 
greater  arrearages  in  the  normal  rate  of  expendi- 
ture. ^  ^ 

It  is  doubtful  if  the  Interstate  Commerce  Com- 
mission gave  full  consideration  to  these  needs 
when  it  decided,  on  May  16,  1922,  that  the  statu- 
tory rate  of  return  should  be  reduced  from  6  /o  to 
534%.  While  the  traffic  volume  of  the  first  halt 
of  1922  exceeded  that  of  the  same  period  in  1921, 
and  while  net  railway  operating  income  was 
greater,  the  railroads  as  a  whole  were  still  some 
distance  away  from  the  ''fair  return"  contem- 
plated by  the  Transportation  Act,  even  under  the 
new  definition  of  the  Commission,  effective  March 

1,  1922.* 

The  original  definition  of  a  fair  rate  of  return 
(51/2%  on  property  value,  plus  a  discretionary 
1/2  of  1%  for  improvements,  betterments  or  equip- 
ment chargeable  to  capital  account)  was  to  remain 
in  effect  during  the  first  two  years  from  March  1, 
1920.  From  March  1,  1922,  the  Commission  was 
required  to  ''determine  and  make  public  what  per- 
centage of  such  aggregate  value  constitutes  a  fair 

*The  return  on  property  value  during  the  first  6  months  of 
1922  was  about  4.4%. 


292  AMERICAN  RAILROADS 

rate  of  return  thereon,  and  such  percentage  shall 
be  uniform  for  all  rate  groups  or  territories  which 
maj''  be  designated  by  the  Commission." 

The  Commission's  decision  was  a  disappoint- 
ment to  the  railroad  executives  and  to  others  who 
believed  that  the  6%  standard  should  be  con- 
tinued. That  rate  is  meagre  enough  as  a  return 
on  invested  capital,  and  it  allows  little  for  the 
creation  of  a  surplus  so  \dtal  to  sound  credit. 
The  Government  itself,  in  its  relations  with  the 
railroads,  exacts  an  interest  rate  of  6%  on  loans 
from  its  revolving  fund. 

The  reduction  of  the  statutory  rate  to  5%% 
has  increased  the  difficulty  of  maintaining  credit 
sufficient  to  permit  the  securing  of  new  capital 
for  needed  extensions,  enlargements  and  better- 
ments. It  is  doubtful  if  the  Commissioners  who 
signed  the  majority  decision  gave  sufficient  con- 
sideration to  the  "necessity  ...  of  enlarging  such 
facilities  in  order  to  provide  the  people  of  the 
United  States  with  adequate  transportation."* 
It  is  not  improbable  that  the  same  shippers  who 
complained  about  high  rates,  and  who  objected 
to  a  statutory  rate  of  return  of  any  kind,  may, 
when  prosperity  returns,  have  greater  reason  to 
complain  about  inadequate  service  or  failure  to 
obtain  cars.  It  is  not  easy  to  convince  the  aver- 
age shipper  that  service  is  as  important,  if  not 
more  important,  than  rates,  and  that  the  railroads 
cannot  furnish  satisfactory  service  unless  the 
shippers  are  willing  to  pay  rates  which  will  enable 

*Section  15a,  Interstate  Commerce  Act  as  amended  in  1922. 


AMERICAN  RAILROADS  293 

the  railroads  to  keep  their  facilities  and  equip- 
ment in  step  with  the  constant  growth  in  traffic 

demand. 

However,  as  the  matter  stood  during  the  lirst 
half  of  1922,  it  made  little  difference  to  the  typi- 
cal road  whether  the  statutory  rate  was  6%  or 
53^%.  The  railroads  as  a  whole,  and  the  great 
majority  of  them  individually,  were  not  earning 
5%%,  and  had  not  earned  that  much  in  1920  or 
1921  For  the  entire  vear  1920  the  return  was 
0  3%;  in  1921  it  was  3.3%  ;  and  during  the  first 
six  months  of  1922,  it  was  4.4%.  The  figures  for 
the  first  6  months,  however,  do  not  furnish  a  tair 
indication  of  the  probable  results  of  the  entire 
year,  since  they  include  the  lean  months  of  Jan- 
uary and  February  and  do  not  include  the  best 
months  of  the  fall.  The  net  operating  income  of 
the  second  half  is  usually  much  better  than  the 
first  half  of  any  year. 

Reference  was  made  in  Chapter  XXI  to  the 
section  of  the  Transportation  x\et  which  contem- 
plates the  ultimate  voluntary  consolidation  of 
the  railroads  of  the  United  States  into  a  limited 
number  of  large  systems  of  fairly  equal  financial 
strength,  so  that  uniform  rates  applying  to  all  of 
such  systems  in  a  territorial  group  may  yield  sub- 
stantially the  same  rate  of  return  upon  property 
value.  The  Commission  was  directed  to  prepare 
and  adopt  a  plan  under  which  such  consolidations 
would  become  effective. 

In  such  action  as  the  Commission  had  taken  in 
this  matter  up  to  July,  1922,  it  has  moved  with  de- 


I 


294  AMERICAN  RAILROADS 

liberation.  Sometime  in  1920  it  began  to  con- 
sider the  general  subject  and  invited  Professor 
William  Z.  Ripley,  of  Harvard  University,  to 
make  an  independent  study  and  to  recommend  a 
comprehensive  plan  for  the  Commission's  con- 
sideration. His  report  was  made  to  the  Com- 
mission during  the  summer  of  1921,  and  the  Com- 
mission published  it  as  an  appendix  to  its  tenta- 
tive plan,  under  date  of  August  3,  1921.*  In  the 
main,  the  tentative  plan,  which  was  '  *  put  forward 
in  order  to  elicit  a  full  record  upon  which  the 
plan  to  be  ultimately  adopted  can  rest, ' '  was  based 
upon  Professor  Ripley's  recommendations,  al- 
though it  differed  therefrom  in  a  few  important 
particulars. 

In  announcing  the  tentative  plan  to  the  carriers, 
the  state  commissions  and  the  public,  the  Com- 
mission gave  notice  of  hearings,  the  dates  to  be 
announced  later.  The  hearings  did  not  actually 
begin  until  early  in  1922,  when  in  the  Southern  car- 
riers, the  state  commissioners  and  others  inter- 
ested, were  asked  to  express  their  views  on  what 
had  been  proposed.  The  point  was  emphasized 
that  the  tentative  plan  had  been  put  forward  mere- 
ly as  a  starting  point  for  discussion,  and  the 
Commission  urged  the  railroad  representatives, 
who  offered  many  objections  to  that  plan,  to  sub- 
mit constructive  ideas  of  their  own  as  to  what 
the  Commission  should  do  in  meeting  the  spirit 
of  the  Act.  Up  to  July,  1922,  nothing  definite 
had  been  accomplished.    The  few  hearings  on  the 

*63  I.  C.  C.  455. 


AMERICAN  RAILROADS  296 

subject  were  confined  to  Southern  territory.  It 
was  apparent  that  the  Commission  was  feeling  its 
way. 

The  Commission's  tentative  plan  contemplates 
the  creation  of  19  large  systems  which  will  em- 
brace practically  all  of  the  Class  1  railroads. 
Alternative  plans  are  suggested  for  New  Eng- 
land. The  brief  titles  give  a  general  indication 
of  the  proposal : 

1.  New  York  Central 

2.  Pennsylvania 

3.  Baltimore  &  Ohio-Reading 

4.  Erie 

5.  Nickel  Plate-Lehigh  Valley 

6.  Fere  Marquette 

7.  New  England 

8.  Chesapeake  &  Ohio 

9.  Norfolk  &  Western 

10.  Southern 

11.  Atlantic  Coast  Line-Louisville  &  Nashville 

12.  Illinois  Central 

13.  Union  Pacific-Northwestern 

14.  Burlington-Northern  Pacific 

15.  Milwaukee-Great  Northern 

16.  Santa  Fe 

17.  Southern  Pacific-Rock  Island 

18.  Frisco-Katy-Cotton  Belt 

19.  Chicago-Missouri  Pacific 

In  each  case  the  roads  named  in  the  title  are 
to  form  the  main  parts  of  the  new  systems  which 
will  also  take  in  certain  smaller  connecting  lines. 

It  has  already  been  pointed  out  that  the  princi- 
pal purpose  of  comprehensive  consolidation  of 


296  AMERICAN   RAILROADS 

railroads  is  to  eliminate  the  greatest  obstacle  in 
the  path  of  effective  regulation  of  competitive 
rates — the  weak  road.  Between  competitive 
points  via  competing  roads,  rates  are  necessarily 
the  same.  A  rate  scale  fixed  to  give  only  a 
reasonable  return  to  the  strong  will  not  permit 
the  weak  to  live.  Rates  made  high  enough  to  in- 
sure adequate  earning  power  to  the  weak  will 
yield  unreasonably  high  returns  to  the  strong. 
Both  the  weak  and  the  strong  are  necessary  to 
the  communities  which  they  serve  locally.  In 
practise  the  Commission  has  been  obliged  to  com- 
promise by  establishing  rate  scales  which  would 
not  be  too  meagre  to  the  weak  nor  too  generous 
to  the  strong,  but  the  tendency  has  been  to  pay 
more  attention  to  curbing  the  prosperous  roads 
than  nourishing  those  which  are  financially  weak. 
The  record  of  the  past  30  years  or  more  reveals 
a  steady  process  of  consolidation  in  which  the 
weaker  roads  have,  willingly  or  unwillingly,  been 
absorbed  by  the  larger  systems. 

The  plan  of  comprehensive  consolidation 
tentatively  put  forth  by  the  Commission  and,  in 
fact,  any  plan  which  may  be  proposed,  cannot 
satisfy  all  of  the  parties  affected.  Conflict  of 
corporate  and  personal  interests,  jealousies,  or 
personal  ambitions  of  individuals,  will  probably 
delay  the  early  adoption  of  any  large-scale  plan 
for  voluntary  consolidation. 

The  natural  desire  of  the  officers  and  directors 
of  an  individual  railroad  company  is  to  maintain 
independence.  They  are  not  adverse  to  enlarg- 
ing their  properties  if  they  can  do  so  on  favorable 


AMERICAN  RAILROADS  297 

terms,  but  they  cannot  be  expected  to  regard  with 
complacency  the  loss  of  identity  and  the  limiting 
of  their  sphere  of  influence  when  their  road  is 
absorbed  by  a  larger  system.  Communities,  too, 
have  prejudices  against  ''absentee  landlordism." 
Local  pride  and  traditions  demand  that  executive 
control  shall  not  be  allowed  to  go  outside  the  state 
or  section.  Again,  while  the  weak  road  may  be 
very  glad  to  end  its  worries  by  becoming  a  part 
of  a  stronger  connection,  and  the  larger  company 
may  not  be  unwilling  to  absorb  the  smaller,  the 
views  of  the  latter  as  to  its  value  and  as  to  the 
terms  of  consolidation  may  be  widely  at  variance 
with  those  of  the  absorbing  road.  The  indigent 
companies  see  promise  of  better  terms  under  a 
comprehensive  plan  of  consolidation,  backed  by 
the  Interstate  Commerce  Commission,  than  in  the 
former  evolutionary  process  when  the  buyer  could 
choose  his  time  and  frequently  could  dictate  his 
terms. 

These  and  other  difficulties  will  probably  re- 
tard the  process  of  voluntary  consolidation.  The 
Commission  has  no  power  to  enforce  its  recom- 
mendations. The  bill  as  it  passed  the  Senate 
called  for  compulsory  consolidation,  but  in  def- 
erence to  the  views  of  the  House,  the  compulsory 
feature  was  eliminated  in  joint  conference.  Un- 
less public  opinion,  awakened  by  the  realization  of 
the  benefits  to  be  derived  from  intelligent  consoli- 
dation on  a  well-planned  large  scale,  asserts 
itself  and  demands  that  the  law  be  amended  so 
that,  with  proper  safeguards  for  property  rights 
of  both  the  strong  and  the  weak  companies,  con- 


298  AMERICAN  RAILROADS 

solidation  shall  be  compulsory,  little  toward  the 
desired  end  will  be  accomplished  under  the  1920 
Act. 

This  is  unfortunate,  because  the  new  rule  of 
rate-making  cannot  operate  successfully  for  the 
railroads  as  a  whole  unless  the  problem  of  the 
weak  road  is  solved  in  some  such  manner  by 
merging  the  weak  with  the  strong. 


II 


APPENDIX 

The  President's  Proclamation  and  State- 
ment TO  Congress,  December  26,  1917.  .  .  .Page  301 

The  Federal  Control  Act,  Approved 

March  21,   1918 Page  310 

The  Standard  Contract  Between  the  Direc- 
tor General  and  the  Individual  Car- 
riers     Page  329 

The  Accomplishments  of  the  U.  S.  Railroad 
Administration  in  Unifying  and  Stand- 
ardizing THE  Statistics  of  Operation 
(Reprinted  from  Annals  of  the  Amer- 
ican Academy  of  Political  and  Social 
Science)     Page  367 


299 


THE    PRESIDENT'S    PROCLAMATION    AND 

STATEMENT  TO  CONGRESS 

DECEMBER  26,  1917 

By  the  President  of  the  United  States  of  America. 
A  PROCLAMATION 

WHEREAS  the  Congress  of  the  United 
States,  in  the  exercise  of  the  constitu- 
tional authority  vested  in  them,  by  joint 
resolution  of  the  Senate  and  House  of  Representa- 
tives bearing  date  April  6,  1917,  resolved : 

That  the  state  of  war  betAveen  the  United  States  and 
the  Imperial  German  Government  which  has  thus  been 
thrust  upon  the  United  States  is  hereby  formally  de- 
clared; and  that  the  President  be,  and  he  is  hereby 
authorized  and  directed  to  employ  the  entire  naval  and 
military  forces  of  the  United  States  and  the  resources 
of  the  Government  to  carry  on  war  against  the  Imperial 
German  Government ;  and  to  bring  the  conflict  to  a  suc- 
cessful termination  all  of  the  resources  of  the  country 
are  hereby  pledged  by  the  Congress  of  the  United  States. 

And  by  joint  resolution  bearing  date  of  Decem- 
ber 7,  1917,  resolved : 

That  a  state  of  war  is  hereby  declared  to  exist  between 
the  United  States  of  America  and  the  Imperial  and 
Royal  Austro-Hungarian  Government;  and  that  the 
President  be,  and  he  is  hereby  authorized  and  directed 
to  employ  the  entire  naval  and  military  forces  of  the 
United  States  and  the  resources  of  the  Government  to 

301 


302  AMERICAN  RAILROADS 

carry  on  war  against  the  Imperial  and  Royal  Austro- 
Hungarian  Government;  and  to  bring  the  conflict  to  a 
successful  termination  all  the  resources  of  the  country 
are  hereby  pledged  by  the  Congress  of  the  United  States. 

And  whereas  it  is  provided  by  section  1  of  the 
act  approved  August  29,  1916,  entitled  *'An  act 
making  appropriations  for  the  support  of  the 
Army  for  the  fiscal  year  ending  June  30,  1917, 
and  for  other  purposes,"  as  follows: 

The  President  in  time  of  war  is  empowered,  through 
the  Secretary  of  War,  to  take  possession  and  assume 
control  of  any  system  or  systems  of  transportation,  or 
any  part  thereof,  and  to  utilize  the  same,  to  the  exclu- 
sion, as  far  as  may  be  necessary,  of  all  other  traffic 
thereon,  for  the  transfer  or  transportation  of  troops, 
war  material,  and  equipment,  or  for  such  other  purposes 
connected  with  the  emergency  as  may  be  needful  or 
desirable. 

And  whereas  it  has  now  become  necessary  in 
the  national  defense  to  take  possession  and  as- 
sume control  of  certain  systems  of  transportation 
and  to  utilize  the  same,  to  the  exclusion,  as  far  as 
may  be  necessary,  of  other  than  war  traffic  there- 
on, for  the  transportation  of  troops,  war  material, 
and  equipment  therefor,  and  for  other  needful 
and  desirable  purposes  connected  vdth  the  pros- 
ecution of  the  war; 

Now,  therefore,  I,  Woodkow  Wilson,  President 
of  the  United  States,  under  and  by  virtue  of  the 
powers  vested  in  me  by  the  foregoing  resolu- 
tions  and   statute,   and  by  virtue    of   all   other 


AMERICAN  RAILROADS  303 

powers  thereto  me  enabling,  do  hereby,  through 
Newton  D.  Baker,  Secretary  of  War,  take  posses- 
sion and  assume  control  at  12  o'clock  noon  on  the 
28th  day  of  December,  1917,  of  each  and  every 
system  of  transportation  and  the  appurtenances 
thereof  located  wholly  or  in  part  within  the 
boundaries  of  the  continental  United  States  and 
consisting  of  railroads  and  owned  or  controlled 
systems  of  coastwise  and  inland  transportation 
engaged  in  general  transportation,  whether  oper- 
ated by  steam  or  by  electric  power,  including  also 
terminals,  terminal  companies,  and  terminal  as- 
sociations, sleeping  and  parlor  cars,  private  cars 
and  private  car  lines,  elevators,  warehouses,  tele- 
graph and  telephone  lines,  and  all  other  equip- 
ment and  appurtenances  commonly  used  upon  or 
operated  as  a  part  of  such  rail  or  combined  rail- 
and-water  systems  of  transportation;  to  the  end 
that  such  systems  of  transportation  be  utilized 
for  the  transfer  and  transportation  of  troops,  war 
material,  and  equipment,  to  the  exclusion  so  far  as 
may  be  necessary  of  all  other  traffic  thereon ;  and 
that  so  far  as  such  exclusive  use  be  not  necessary 
or  desirable  such  systems  of  transportation  be 
operated  and  utilized  in  the  performance  of  such 
other  services  as  the  national  interest  may  require 
and  of  the  usual  and  ordinary  business  and  duties 
of  common  carriers. 

It  is  hereby  directed  that  the  possession,  con- 
trol, operation,  and  utilization  of  such  transporta- 
tion systems,  hereby  by  me  undertaken,  shall  be 
exercised  by  and  through  William  G.  McAdoo, 
who  is  hereby  appointed  and  designated  Director 


304  AMERICAN  RAILROADS 

General  of  Railroads.  Said  director  may  perform 
the  duties  imposed  upon  him,  so  long  and  to  such 
extent  as  he  shall  determine,  through  the  boards 
of  directors,  receivers,  officers,  and  employees  of 
said  sj'stems  of  transportation.  Until  and  except 
so  far  as  said  director  shall  from  time  to  time  by 
general  or  special  orders  otherwise  provide,  the 
boards  of  directors,  receivers,  officers,  and  em- 
ployees of  the  various  transportation  systems 
shall  continue  the  operation  thereof  in  the  usual 
and  ordinary  course  of  the  business  of  common 
carriers,  in  the  names  of  their  respective  com- 
panies. 

Until  and  except  so  far  as  said  director  shall 
from  time  to  time  otherwise  by  general  or  special 
orders  determine,  such  systems  of  transportation 
shall  remain  subject  to  all  existing  statutes  and 
orders  of  the  Interstate  Commerce  Commission 
and  to  all  statutes  and  orders  of  regulating  com- 
missions of  the  various  States  in  which  said 
systems  or  any  part  thereof  may  be  situated.  But 
any  orders,  general  or  special,  hereafter  made  by 
said  director  shall  have  paramount  authority  and 
be  obe^^ed  as  such. 

Nothing  herein  shall  be  construed  as  now  affect- 
ing the  possession,  operation,  and  control  of  street 
electric  passenger  railways,  including  railways 
commonly  called  interurbans,  whether  such  rail- 
ways be  or  be  not  owned  or  controlled  by  such 
railroad  companies  or  systems.  By  subsequent 
order  and  proclamation,  if  and  when  it  shall  be 
found  necessary  or  desirable,  possession,  control, 
or  operation  may  be  taken  of  all  or  any  part  of 
such  street  railway  systems,  including  subways 


AMERICAN  RAILROADS  305 

and  tunnels;  and  b}'  subsequent  order  and  proc- 
lamation possession,  control,  and  operation  in 
whole  or  in  part  may  also  be  relinquished  to  the 
owners  thereof  of  any  part  of  the  railroad  sys- 
tems or  rail  and  water  systems,  possession  and 
control  of  which  are  hereby  assumed. 

The  director  shall,  as  soon  as  may  be  after  hav- 
ing assumed  such  possession  and  control,  enter 
upon  negotiations  Avith  the  several  companies 
looking  to  agreements  for  just  and  reasonable 
compensation  for  the  possession,  use,  and  control 
of  their  respective  properties  on  the  basis  of  an 
annual  guaranteed  compensation  above  accruing 
depreciation  and  the  maintenance  of  their  prop- 
erties equivalent,  as  nearly  as  may  be,  to  the 
average  of  the  net  operating  income  thereof  for 
the  three-year  period  ending  June  30,  1917,  the 
results  of  such  negotiations  to  be  reported  to  me 
for  such  action  as  mav  be  appropriate  and  law- 
ful. 

But  nothing  herein  contained,  expressed  or  im- 
plied, or  hereafter  done  or  suffered  hereunder, 
shall  be  deemed  in  any  way  to  impair  the  rights 
of  the  stockholders,  bondholders,  creditors,  and 
other  persons  having  interests  in  said  systems  of 
transportation  or  in  the  profits  thereof  to  receive 
just  and  adequate  compensation  for  the  use  and 
control  and  operation  of  their  property  hereby 
assumed. 

Regular  dividends  hitherto  declared  and  ma- 
turing interest  upon  bonds,  debentures,  and  other 
obligations  may  be  paid  in  due  course;  and  such 
regular  dividends  and  interest  may  continue  to 
be  paid  until  and  unless  the  said  director  shall 


306  AMERICAN  RAILROADS 

from  time  to  time  otherwise  by  general  or  special 
orders  determine;  and,  subject  to  the  approval  of 
the  director,  the  various  carriers  may  agree  upon 
and  arrange  for  the  renewal  and  extension  of 
maturing  obligations. 

Except  with  the  prior  written  assent  of  said 
director,  no  attachment  by  mesne  process  or  on 
execution  shall  be  levied  on  or  against  any  of  the 
property  used  by  any  of  said  transportation  sys- 
tems in  the  conduct  of  their  business  as  common 
carriers ;  but  suits  may  be  brought  by  and  against 
said  carriers  and  judgments  rendered  as  hitherto 
until  and  except  so  far  as  said  director  may,  by 
general  or  special  orders,  otherwise  determine. 

From  and  after  12  o'clock  noon  on  said  28th 
day  of  December,  1917,  all  transportation  systems 
included  in  this  order  and  proclamation  shall  con- 
clusively be  deemed  within  the  possession  and 
control  of  said  director  without  further  act  or 
notice.  But  for  the  purpose  of  accounting  said 
possession  and  control  shall  date  from  12  o'clock 
midnight  on  December  31,  1917. 

In  witness  whereof  I  have  hereunto  set  my  hand 
and  caused  the  seal  of  the  United  States  to  be 
afiGxed. 

Done  by  the  President,  through  Newton  D. 
Baker,  Secretary  of  War,  in  the  District  of 
Columbia,  this  26th  day  of  December,  in  the  year 
of  our  Lord  one  thousand  nine  hundred  and 
seventeen,  and  of  the  independence  of  the  United 
States  the  one  hundred  and  forty-second. 

WooDRow  Wilson. 

By  the  President: 

Robert  Lansing,  Newton  D.  Baker, 

Secretary  of  State.  Secretary  of  War. 


AMERICAN  RAILROADS  307 

Statement  of  the  President 

I  have  exercised  the  powers  over  the  trans- 
portation systems  of  the  country  which  were 
granted  me  by  the  act  of  Congress  of  last  August 
because  it  has  become  imperatively  necessary  for 
me  to  do  so.  This  is  a  war  of  resources  no  less 
than  of  men,  perhaps  even  more  than  of  men,  and 
it  is  necessary  for  the  complete  mobilization  of 
our  resources  that  the  transportation  systems  of 
the  country  should  be  organized  and  employed 
under  a  single  authority  and  a  simplified  method 
of  coordination  which  have  not  proved  possible 
under  private  management  and  control.  The 
committee  of  railway  executives  who  have  been 
cooperating  with  the  Government  in  this  all- 
important  matter  have  done  the  utmost  that  it 
was  possible  for  them  to  do;  have  done  it  with 
patriotic  zeal  and  with  great  ability;  but  there 
were  difficulties  that  they  could  neither  escape  nor 
neutralize.  Complete  unity  of  administration  in 
the  present  circumstances  involves  upon  occasion 
and  at  many  points  a  serious  dislocation  of  earn- 
ings, and  the  committee  was,  of  course,  without 
power  or  authority  to  rearrange  charges  or  effect 
proper  compensations  and  adjustments  of  earn- 
ings. Several  roads  which  were  willingly  and 
with  admirable  public  spirit  accepting  the  orders 
of  the  committee  have  already  suffered  from  these 
circumstances  and  should  not  be  required  to  suffer 
further.  In  mere  fairness  to  them  the  full 
authority  of  the  Government  must  be  substituted. 
The  Government  itself  ^^^ll  thereby  gain  an  im- 
mense increase  of  efficiency  in  the  conduct  of  the 


308  AMERICAN  RAILROADS 

war  and  of  the  innumerable  activities  upon  which 
its  successful  conduct  depends. 

The  public  interest  must  be  first  served  and,  in 
addition,  the  financial  interests  of  the  Govern- 
ment and  the  financial  interests  of  the  railways 
must  be  brought  under  a  common  direction.  The 
financial  operations  of  the  railways  need  not  then 
interfere  with  the  borrowings  of  the  Government, 
and  they  themselves  can  be  conducted  at  a  greater 
advantage.  Investors  in  railway  securities  may 
rest  assured  that  their  rights  and  interests  will 
be  as  scrupulously  looked  after  by  the  Govern- 
ment as  they  could  be  by  the  directors  of  the  sev- 
eral railway  systems.  Immediately  upon  the  re- 
assembling of  Congress  I  shall  recommend  that 
these  definite  guarantees  be  given:  First,  of 
course,  that  the  railway  properties  will  be  main- 
tained during  the  period  of  federal  control  in  as 
good  repair  and  as  complete  equipment  as  when 
taken  over  by  the  Government;  and,  second,  that 
the  roads  shall  receive  a  net  operating  income 
equal  in  each  case  to  the  average  net  income  of 
the  three  years  preceding  June  30,  1917;  and  I 
am  entirely  confident  that  the  Congress  will  be 
disposed  in  this  case,  as  in  others,  to  see  that 
justice  is  done  and  full  security  assured  to  the 
owners  and  creditors  of  the  great  systems  which 
the  Government  must  now  use  under  its  own  di- 
rection or  else  suffer  serious  embarrassment. 

The  Secretary  of  War  and  I  are  agreed  that, 
all  the  circumstances  being  taken  into  considera- 
tion, the  best  results  can  be  obtained  under  the 
immediate  executive  direction  of  the  Hon.  William 
G.  McAdoo,  whose  practical  experience  peculiarly 


AMERICAN  RAILROADS  309 

fits  him  for  the  service  and  whose  authority  as 
Secretary  of  the  Treasury  will  enable  him  to  co- 
ordinate as  no  other  man  could  the  many  financial 
interests  which  will  be  involved  and  which  might, 
unless  systematically  directed,  suffer  very  em- 
barrassing entanglements. 

The  Government  of  the  United  States  is  the 
only  great  Government  now  engaged  in  the  war 
which  has  not  already  assumed  control  of  this 
sort.  It  was  thought  to  be  in  the  spirit  of  Amer- 
ican institutions  to  attempt  to  do  everything  that 
was  necessary  through  private  management,  and  if 
zeal  and  ability  and  patriotic  motive  could  have 
accomplished  the  necessary  unification  of  adminis- 
tration it  would  certainly  have  been  accomplished ; 
but  no  zeal  or  ability  could  overcome  insuperable 
obstacles,  and  I  have  deemed  it  my  duty  to  recog- 
nize that  fact  in  all  candor,  now  that  it  is  demon- 
strated, and  to  use  without  reserve  the  great 
authority  reposed  in  me.  A  great  national  neces- 
sity dictated  the  action,  and  I  was  therefore  not  at 
liberty  to  abstain  from  it. 

WooDROW  Wilson. 


FEDERAL  CONTROL  ACT 

[Public— No,  107— 65th  Congress.] 
[S.  3752.] 

An  Act  to  provide  for  the  operation  of  transportation 
systems  while  under  federal  control,  for  the  just  com- 
pensation of  their  owners,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Rep- 
resentatives of  the  United  States  of  America  in 
Congress  assembled,  That  the  President,  having 
in  time  of  war  taken  over  the  possession,  use, 
control,  and  operation  (called  herein  federal  con- 
trol) of  certain  railroads  and  systems  of  trans- 
portation (called  herein  carriers),  is  hereby 
authorized  to  agree  with  and  to  guarantee  to  any 
such  carrier  making  operating  returns  to  the  In- 
terstate Commerce  Commission,  that  during  the 
period  of  sncli  federal  control  it  shall  receive  as 
just  compensation  an  annual  sum,  payable  from 
time  to  time  in  reasonable  installments,  for  each 
year  and  pro  rata  for  any  fractional  year  of  such 
federal  control,  not  exceeding  a  sum  equivalent 
as  nearly  as  may  be  to  its  average  annual  railway 
operating  income  for  the  three  years  ended  June 
thirtieth, -nineteen  hundred  and  seventeen. 

That  any  railway  operating  income  accruing 
during  the  period  of  federal  control  in  excess  of 
such  just  compensation  shall  remain  the  property 
of  the  United  States.    In  the  computation  of  such 

310 


AMERICAN  RAILROADS  311 

income,  debits  and  credits  arising  from  the  ac- 
counts called  in  the  monthly  reports  to  the  Inter- 
state Commerce  Commission  equipment  rents  and 
joint  facility  rents  shall  be  included,  but  debits 
and  credits  arising  from  the  operation  of  such 
street  electric  passenger  railways,  including  rail- 
ways commonly  called  interurbans,  as  are  at  the 
time  of  the  agreement  not  under  federal  control, 
shall  be  excluded.  If  any  lines  were  acquired  by, 
leased  to,  or  consolidated  with  such  railroad  or 
system  between  July  first,  nineteen  hundred  and 
fourteen,  and  December  thirty-first,  nineteen  hun- 
dred and  seventeen,  both  inclusive,  and  separate 
operating  returns  to  the  Interstate  Commerce 
Commission  were  not  made  for  such  lines  after 
such  acquisition, lease,  or  consolidation,  there  shall 
(before  the  average  is  computed)  be  added  to  the 
total  railway  operating  income  of  such  railroad 
or  system  for  the  three  years  ended  June  thirtieth, 
nineteen  hundred  and  seventeen,  the  total  railway 
operating  income  of  the  lines  so  acquired,  leased, 
or  consolidated,  for  the  period  beginning  July 
first,  nineteen  hundred  and  fourteen,  and  ending 
on  the  date  of  such  acquisition,  lease,  or  consoli- 
dation, or  on  December  thirty-first,  nineteen  hun- 
dred and  seventeen,  whichever  is  the  earlier.  The 
average  annual  railway  operating  income  shall  be 
ascertained  by  the  Interstate  Commerce  Commis- 
sion and  certified  by  it  to  the  President.  Its 
certificate  shall,  for  the  purpose  of  such  agree- 
ment, be  taken  as  conclusive  of  the  amount  of  such 
average  annual  railway  operating  income. 

Every  such  agreement  shall  provide  that  any 
federal  taxes  under  the  Act  of  October  third, 


312  AMERICAN   RAILROADS 

iiiiieteeii  hundred  and  seventeen,  or  Acts  in  addi- 
tion tboreto  or  in  amendment  thereof,  commonly 
called  war  taxes,  assessed  for  the  period  of  fed- 
eral control  beginning  January  first,  nineteen 
hundred  and  eighteen,  or  any  part  of  such  period, 
shall  bo  paid  by  the  carrier  out  of  its  own  funds, 
or  shall  be  charged  against  or  deducted  from  the 
just  compensation;  that  other  taxes  assessed 
under  federal  or  any  otlier  governmental  author- 
ity for  the  period  of  federal  control  or  any  part 
thereof,  either  on  the  property  used  under  such 
federal  control  or  on  the  right  to  operate  as  a 
carrier,  or  on  the  revenues  or  any  pnrt  thereof 
derived  from  operation  (not  including,  however, 
assessments  for  public  improvements  or  taxes 
assessed  on  property  under  construction,  and 
chargeable  under  the  classification  of  the  Inter- 
state Commerce  Commission  to  investment  in 
road  and  equipment),  shall  be  paid  out  of  rev- 
enues derived  from  railway  operations  while 
under  federal  control ;  that  all  taxes  assessed 
under  federal  or  any  other  governmental  au- 
thority for  the  period  prior  to  January  first,  nine- 
teen hundred  and  eighteen,  whenever  levied  or 
payable,  shall  be  paid  by  the  carrier  out  of  its  own 
funds,  or  shall  ])e  charged  against  or  deducted 
from  the  just  compensation. 

Every-  such  agreement  shall  also  contain  ade- 
quate and  appropriate  provisions  for  the  main- 
tenance, repair,  renewals,  and  depreciation  of  the 
property,  for  the  creation  of  any  reserves  or 
reserve  funds  found  necessary  in  connection 
therewith,  and  for  such  accounting  and  adjust- 


AMERICAN  RAILROADS  313 

meiits  of  charges  and  payments,  both  during  and 
at  the  end  of  federal  control  as  may  be  requisite 
in  order  that  the  property  of  each  carrier  may  be 
returned  to  it  in  substantially  as  good  repair  and 
in  substantially  as  complete  equipment  as  it  was 
in  at  the  beginning  of  federal  control,  and  also 
that  the  United  States  may,  by  deductions  from 
the  just  compensations  or  by  other  proper  means 
and  charges  be  reimbursed  for  the  cost  of  any 
additions,  repairs,  renewals,  and  betterments  to 
such  property  not  justly  chargeable  to  the  United 
States;  in  making  such  accounting  and  adjust- 
ments, due  consideration  shall  be  given  to  the 
amounts  expended  or  reserved  by  each  carrier 
for  maintenance,  repairs,  renewals,  and  deprecia- 
tion during  the  three  years  ended  June  thirtieth, 
nineteen  hundred  and  seventeen,  to  the  condition 
of  the  property  at  the  begiiniiiig  and  at  the  end  of 
federal  control  and  to  any  other  pertinent  facts 
and  circumstances. 

The  President  is  further  authorized  in  such 
agreement  to  make  all  other  reasonable  provi- 
sions, not  inconsistent  with  the  provisions  of  this 
Act  or  of  the  Act  entitled  ''An  Act  making  appro- 
priations for  the  support  of  the  Army  for  the 
fiscal  year  ending  June  thirtieth,  nineteen  hun- 
dred and  seventeen,  and  for  other  purposes," 
approved  August  twenty-ninth,  nineteen  hundred 
and  sixteen,  that  he  may  deem  necessary  or 
proper  for  such  federal  control  or  for  the  deter- 
mination of  the  mutual  rights  and  obligations  of 


814  AMERICAN   RAILROADS 

the  parties  to  the  agreement  arising  from  or  out 
of  such  federal  control. 

If  the  President  shall  find  that  the  condition  of 
any  carrier  was  during  all  or  a  substantial  portion 
of  the  period  of  three  years  ended  June  thirtieth, 
nineteen  liuiidred  and  seventeen,  because  of  non- 
operation,  receivership,  or  where  recent  expendi- 
tures for  additions  or  improvements  or  equipment 
were  not  fully  reflected  in  the  operating  railway 
income  of  said  three  years  or  a  substantial  portion 
thereof,  or  because  of  any  undeveloped  or  abnor- 
mal conditions,  so  exceptional  as  to  make  the 
basis  of  earnings  hereinabove  provided  for 
plainly  inequitable  as  a  fair  measure  of  just  com- 
pensation, then  the  President  may  make  with  the 
carrier  such  agreement  for  such  amount  as  just 
compensation  as  under  the  circumstances  of  the 
particular  case  he  shall  find  just. 

That  every  railroad  not  owned,  controlled,  or 
operated  by  another  carrier  company,  and  which 
has  heretofore  competed  for  traffic  with  a  railroad 
or  railroads  of  which  the  President  has  taken  the 
possession,  use,  and  control,  or  which  connects 
with  such  railroads  and  is  engaged  as  a  common 
carrier  in  general  transportation,  shall  be  held 
and  considered  as  within  ''federal  control,"  as 
herein  defined,  and  necessary  for  the  prosecution 
of  the  war,  and  shall  be  entitled  to  the  benefit  of 
all  the  provisions  of  this  Act:  Provided,  however, 
That  nothing  in  this  paragraph  shall  be  construed 
as  including  any  street  or  interurban  electric  rail- 
way which  has  as  its  principal  source  of  operating 


AMERICAN  RAILROADS  315 

revenue  urban,  suburban,  or  interurban  passenger 
traffic,  or  sale  of  power,  heat  and  light,  or  both. 

The  agreement  shall  also  provide  that  the  car- 
rier shall  accept  all  the  terms  and  conditions  of 
this  act  and  any  regulation  or  order  made  by  or 
through  the  President  under  authority  of  this  act 
or  of  that  portion  of  the  act  entitled  '*An  act 
making  appropriations  for  the  support  of  the 
Army  for  the  fiscal  year  ending  June  thirtieth, 
nineteen  hundred  and  seventeen,  and  for  other 
purposes,"  approved  August  twenty-ninth,  nine- 
teen hundred  and  sixteen,  which  authorizes  the 
President  in  time  of  war  to  take  possession,  as- 
sume control,  and  utilize  systems  of  transporta- 
tion. 

Sec.  2.  That  if  no  such  agreement  is  made,  or 
pending  the  execution  of  an  agreement,  the 
President  may  nevertheless  pay  to  any  carrier 
while  under  federal  control  an  annual  amount, 
payable  in  reasonable  installments,  not  exceeding 
ninety  per  centum  of  the  estimated  annual  amount 
of  just  compensation,  remitting  such  carrier,  in 
case  where  no  agreement  is  made,  to  its  legal 
rights  for  any  balance  claimed  to  the  remedies 
provided  in  section  three  hereof.  Any  amount 
thereafter  found  due  such  carrier  above  the 
amount  paid  shall  bear  interest  at  the  rate  of  six 
per  centum  per  annum.  The  acceptance  of  any 
benefits  under  this  section  shall  constitute  an 
acceptance  by  the  carrier  of  all  the  provisions  of 
this  Act  and  shall  obligate  the  carrier  to  pay  to  the 
United  States,  with  interest  at  the  rate  of  six  per 
centum  per  annum  from  a  date  or  dates  fixed  in 


316  AMERICAN   RAILROADS 

proceedings  under  section  three,  the  amount  by 
which  the  suras  received  under  this  section  exceed 
the  sum  found  due  in  such  proceedings. 

Sec.  3.  That  all  claims  for  just  compensation 
not  adjusted  (as  provided  in  section  one)  shall, 
on  the  application  of  the  President  or  of  any 
carrier,  be  submitted  to  boards,  each  consisting  of 
three  referees  to  be  appointed  by  the  Interstate 
Commerce  Commission,  members  of  which  and 
the  official  force  thereof  being  eligible  for  service 
on  such  boards  without  additional  compensation. 
Such  boards  of  referees  are  hereby  authorized  to 
summon  witnesses,  require  the  production  of 
records,  books,  correspondence,  documents,  mem- 
oranda, and  other  papers,  view  properties,  admin- 
ister oaths,  and  may  hold  hearings  in  Washington 
and  elsewhere,  as  their  duties  and  the  convenience 
of  the  parties  may  require.  In  case  of  disobedi- 
ence to  a  subpoena  the  board  may  invoke  the  aid 
of  any  district  court  of  the  United  States  in 
requiring  the  attendance  and  testimony  of  wit- 
nesses and  the  production  of  documentary  evi- 
dence, and  such  court  within  the  jurisdiction  of 
which  such  inquiry  is  carried  on  may,  in  case  of 
contumacy  or  refusal  to  obey  a  subpoena  issued 
to  any  person,  corporation,  partnership,  or  asso- 
ciation, issue  an  order  requiring  appearance  be- 
fore the  board,  or  the  production  of  documentary 
evidence  if  so  ordered,  or  the  giving  of  evidence 
touching  the  matter  in  question;  and  any  failure 
to  obey  such  order  of  the  court  may  be  punished 
by  such  court  as  a  contempt  thereof.  Such 
cases  may  be  heard  separately  or  together  or  by 
classes,  by  such  boards  as  the  Interstate  Com- 


AMERICAN  RAILROADS  317 

merce  Commission  in  the  first  instance,  or  any 
board  of  referees  to  which  any  such  cases  shall  be 
referred  may  determine.  Said  boards  shall  give 
full  hearings  to  such  carriers  and  to  the  United 
States;  shall  consider  all  the  facts  and  circum- 
stances, and  shall  report  as  soon  as  practicable  in 
each  case  to  the  President  the  just  compensation, 
calculated  on  an  annual  basis  and  otherwise  in 
such  form  as  to  be  convenient  and  available  for 
the  making  of  such  agreement  as  is  authorized  in 
section  one.  The  President  is  authorized  to  enter 
into  an  agreement  with  such  carrier  for  just  com- 
pensation upon  a  basis  not  in  excess  of  that 
reported  by  such  board,  and  may  include  therein 
provisions  similar  to  those  authorized  under  sec- 
tion one.  Failing  such  agreement,  either  the 
United  States  or  such  carrier  may  file  a  petition 
in  the  Court  of  Claims  for  the  purpose  of  deter- 
mining the  amount  of  such  just  compensation,  and 
in  the  proceedings  in  said  court  the  report  of  said 
referees  shall  be  prima  facie  evidence  of  the 
amount  of  just  compensation  and  of  the  facts 
therein  stated.  Proceedings  in  the  Court  of 
Claims  under  this  section  shall  be  given  pre- 
cedence and  expedited  in  every  practical  way. 

Sec.  4.  That  the  just  compensation  that  may  be 
determined  as  hereinbefore  provided  by  agree- 
ment or  that  may  be  adjudicated  by  the  Court  of 
Claims,  shall  be  increased  by  an  amount  reckoned 
at  a  reasonable  rate  per  centum  to  be  fixed  by  the 
President  upon  the  cost  of  any  additions  and  bet- 
terments, less  retirements,  and  upon  the  cost  of 
road  extensions  to  the  property  of  such  carrier 
made  by  such  carrier  with  the  approval  of  or  by 


318  AMERICAN   RAILROADS 

order  of  the  President  while  such  property  is 
under  federal  control. 

Sec.  5.  That  no  carrier  while  under  federal  con- 
trol shall,  without  the  prior  approval  of  the 
President,  declare  or  pay  any  dividend  in  excess 
of  its  regular  rate  of  dividends  during  the  three 
years  ended  June  thirtieth,  nineteen  hundred  and 
seventeen:  Provided,  however,  That  such  carriers 
as  have  paid  no  regular  dividends  or  no  dividends 
during  said  period  may,  with  the  prior  approval  of 
the  President,  pay  dividends  at  such  rate  as  the 
President  may  determine. 

Sec.  6.  That  the  sum  of  $500,000,000  is  hereby 
appropriated,  out  of  any  moneys  in  the  Treasury 
not  otherwise  appropriated,  which,  together  with 
any  funds  available  from  any  operating  income  of 
said  carriers,  may  be  used  by  the  President  as  a 
revolving  fund  for  the  purpose  of  paying  the 
expenses  of  the  federal  control,  and  so  far  as 
necessary  the  amount  of  just  compensation,  and 
to  provide  terminals,  motive  power,  cars,  and 
other  necessary  equipment,  such  terminals,  motive 
power,  cars,  and  equipment  to  be  used  and  ac- 
counted for  as  the  President  may  direct  and  to  be 
disposed  of  as  Congress  may  hereafter  by  law 
provide. 

The  President  may  also  make  or  order  any  car- 
rier to  make  any  additions,  betterments,  or  road 
extensions,  and  to  provide  terminals,  motive 
power,  cars,  and  other  equipment  necessary  or 
desirable  for  war  purposes  or  in  the  public  in- 
terest on  or  in  connection  with  the  property  of 


AMERICAN  RAILROADS  319 

any  carrier.  He  may  from  said  revolving  fund 
advance  to  such  carrier  all  or  any  part  of  the  ex- 
pense of  such  additions,  betterments,  or  road 
extensions,  and  to  provide  terminals,  motive 
power,  cars,  and  other  necessary  equipment  so 
ordered  and  constructed  by  such  carrier  or  by  the 
President,  such  advances  to  be  charged  against 
such  carrier  and  to  bear  interest  at  such  rate  and 
be  payable  on  such  terms  as  may  be  determined 
by  the  President,  to  the  end  that  the  United  States 
may  be  fully  reimbursed  for  any  sums  so  ad- 
vanced. 

Any  loss  claimed  by  any  carrier  by  reason  of 
any  such  additions,  betterments,  or  road  exten- 
sions so  ordered  and  constructed  may  be  deter- 
mined by  agreement  between  the  President  and 
such  carrier;  failing  such  agreement  the  amount 
of  such  loss  shall  be  ascertained  as  provided  in 
section  three  hereof. 

From  said  revolving  fund  the  President  may 
expend  such  an  amount  as  he  may  deem  necessary 
or  desirable  for  the  utilization  and  operation  of 
canals,  or  for  the  purchase,  construction,  or  util- 
ization and  operation  of  boats,  barges,  tugs,  and 
other  transportation  facilities  on  the  inland, 
canal,  and  coastwise  waterways,  and  may  in  the 
operation  and  use  of  such  facilities  create  or  em- 
ploy such  agencies  and  enter  into  such  contracts 
and  agreements  as  he  shall  deem  in  the  public 
interest. 

No  provision  of  this  Act  shall  be  construed  to 
prevent  the  routing  of  freight  by  a  shipper  or 
consignee  over  any  inland  canal  or  coastwise 
waterway,  or  a  part  way  over  such  waterway  and 


320  AMERICAN  RAILROADS 

a  part  way  by  rail.  In  case  the  shipper  or  con- 
signee shall  so  route  the  freight,  no  provision  of 
this  Act  shall  be  construed  as  giving  power  to 
change  the  routing. 

Sec.  7.  That  for  the  purpose  of  providing  funds 
requisite  for  maturing  obligations  or  for  other 
legal  and  proper  expenditures,  or  for  reorganiz- 
ing railroads  in  receivership,  carriers  may,  during 
the  period  of  federal  control,  issue  such  bonds, 
notes,  equipment  trust  certificates,  stock,  and 
other  forms  of  securities,  secured  or  unsecured 
by  mortgage,  as  the  President  may  first  approve 
as  consistent  "\vith  the  public  interest.  The  Presi- 
dent may,  out  of  the  revolving  fund  created  by 
this  Act,  purchase  for  the  United  States  all  or  any 
part  of  such  securities  at  prices  not  exceeding  par, 
and  may  sell  such  securities  whenever  in  his 
judgment  it  is  desirable  at  prices  not  less  than 
the  cost  thereof.  Any  securities  so  purchased 
shall  be  held  by  the  Secretary  of  the  Treasury, 
who  shall,  under  the  direction  of  the  President, 
represent  the  United  States  in  all  matters  in  con- 
nection therewith  in  the  same  manner  as  a  private 
holder  thereof.  The  President  shall  each  year 
as  soon  as  practicable  after  January  first,  cause 
a  detailed  report  to  be  submitted  to  the  Congress 
of  all  receipts  and  expenditures  made  under  this 
section  and  section  six  during  the  preceding  cal- 
endar year. 

Sec.  8.  That  the  President  may  execute  any  of 
the  powers  herein  and  heretofore  granted  him 
with   relation   to   federal   control   through   such 


AMERICAN  RAILROADS  821 

agencies  as  he  may  determine,  and  may  fix  the 
reasonable  compensation  for  the  performance  of 
services  in  connection  therewith,  and  may  avail 
himself  of  the  advice,  assistance,  and  cooperation 
of  the  Interstate  Commerce  Commission  and  of 
the  members  and  employees  thereof,  and  may 
also  call  upon  any  department,  commission,  or 
board  of  the  Government  for  such  services  as  he 
may  deem  expedient.  But  no  such  official  or  em- 
ployee of  the  United  States  shall  receive  any 
additional  compensation  for  such  services  except 
as  now  permitted  by  law. 

Sec.  9.  That  the  provisions  of  the  Act  entitled 
**An  Act  making  appropriations  for  the  support 
of  the  Army  for  the  fiscal  year  ending  June 
thirtieth,  nineteen  hundred  and  seventeen,  and 
for  other  purposes,"  approved  August  twenty- 
ninth,  nineteen  hundred  and  sixteen,  shall  remain 
in  force  and  effect  except  as  qxpressly  modified 
and  restricted  by  this  Act;  and  the  President,  in 
addition  to  the  powers  conferred  by  this  Act, 
shall  have  and  is  hereby  given  such  other  and  fur- 
ther powers  necessary  or  appropriate  to  give 
effect  to  the  powers  herein  and  heretofore  con- 
ferred. The  provisions  of  this  act  shall  also  apply 
to  any  carriers  to  which  federal  control  may  be 
hereafter  extended. 

Sec.  10.  That  carriers  while  under  federal  con- 
trol shall  be  subject  to  all  laws  and  liabilities  as 
common  carriers,  whether  arising  under  state  or 
federal  laws  or  at  common  law,  except  in  so  far 
as  may  be  inconsistent  with  the  provisions  of  this 
act  or  any  other  act  applicable  to  such  federal 


822  AMERICAN  RAILROADS 

control  or  with  any  order  of  the  President.  Ac- 
tions at  law  or  suits  in  equity  may  be  brought  by 
and  against  such  carriers  and  judgments  ren- 
dered as  now  provided  by  law ;  and  in  any  action 
at  law  or  suit  in  equity  against  the  carrier,  no 
defense  shall  be  made  thereto  upon  the  ground 
that  the  carrier  is  an  instrumentality  or  agency 
of  the  Federal  Government.  Nor  shall  any  such 
carrier  be  entitled  to  have  transferred  to  a  fed- 
eral court  any  action  heretofore  or  hereafter 
instituted  by  or  against  it,  which  action  was  not 
80  transferable  prior  to  the  federal  control  of 
such  carrier ;  and  any  action  which  has  heretofore 
been  so  transferred  because  of  such  federal  con- 
trol or  of  any  act  of  Congress  or  official  order  or 
proclamation  relating  thereto  shall  upon  motion 
of  either  party  be  transferred  to  the  court  in 
which  it  was  originally  instituted.  But  no  proc- 
ess, mesne  or  final,  shall  be  levied  against  any 
property  under  such  federal  control. 

That  during  the  period  of  federal  control,  when- 
ever in  his  opinion  the  public  interest  requires, 
the  President  may  initiate  rates,  fares,  charges, 
classifications,  regulations,  and  practises  by  filing 
the  same  with  the  Interstate  Commerce  Commis- 
sion, which  said  rates,  fares,  charges,  classifica- 
tions, regulations,  and  practises  shall  not  be 
suspended  by  the  commission  pending  final  deter- 
mination. 

Said  rates,  fares,  charges,  classifications,  regu- 
lations, and  practises  shall  be  reasonable  and 
just  and  shall  take  effect  at  such  time  and  upon 
such  notice  as  he  may  direct,  but  the  Interstate 
Commerce    Commission,    shall,    upon    complaint. 


AMERICAN  RAILROADS  323 

enter  upon  a  hearing  concerning  the  justness  and 
reasonableness  of  so  much  of  any  order  of  the 
President  as  establishes  or  changes  any  rate, 
fare,  charge,  classification,  regulation,  or  practise 
of  any  carrier  under  federal  control,  and  may  con- 
sider all  the  facts  and  circumstances  existing  at 
the  time  of  the  making  of  the  same.  In  deter- 
mining any  question  concerning  any  such  rates, 
fares,  charges,  classifications,  regulations,  or 
practises  or  changes  therein,  the  Interstate  Com- 
merce Commission  shall  give  due  consideration 
to  the  fact  that  the  transportation  systems  are 
being  operated  under  a  unified  and  coordinated 
national  control  and  not  in  competition. 

After  full  hearing  the  commission  may  make 
such  findings  and  orders  as  are  authorized  by 
the  act  to  regulate  commerce  as  amended,  and 
said  findings  and  orders  shall  be  enforced  as  pro- 
vided in  said  Act :  Provided,  hoivever,  That  when 
the  President  shall  find  and  certify  to  the  Inter- 
state Commerce  Commission  that  in  order  to 
defray  the  expenses  of  federal  control  and  oper- 
ation fairly  chargeable  to  railway  operating 
expenses,  and  also  to  pay  railway  tax  accruals 
other  than  war  taxes,  net  rents  for  joint  facilities 
and  equipment,  and  compensation  to  the  carriers, 
operating  as  a  unit,  it  is  necessary  to  increase  the 
railway  operating  revenues,  the  Interstate  Com- 
merce Commission  in  determining  the  justness 
and  reasonableness  of  any  rate,  fare,  charge, 
classification,  regulation,  or  practise  shall  take 
into  consideration  said  finding  and  certificate  by 
the  President,  together  with  such  recommenda- 
tions as  he  may  make. 


324  AMERICAN  RAILROADS 

Sec.  11.  That  every  person  or  corporation, 
whether  carrier  or  shipper,  or  any  receiver, 
trustee,  lessee,  agent,  or  person  acting  for  or 
employed  by  a  carrier  or  shipper,  or  other  per- 
son, who  shall  knowingly  violate  or  fail  to  observe 
any  of  the  provisions  of  this  Act,  or  shall  know- 
ingly interfere  with  or  impede  the  possession, 
use,  operation,  or  control  of  any  railroad  prop- 
erty, railroad,  or  transportation  system  hitherto 
or  hereafter  taken  over  by  the  President,  or  shall 
knowingly  violate  any  of  the  provisions  of  any 
order  or  regulation  made  in  pursuance  of  this 
Act,  shall  be  guilty  of  a  misdemeanor,  and  shall, 
upon  conviction,  be  punished  by  a  fine  of  not  more 
than  $5,000,  or,  if  a  person,  by  imprisonment  for 
not  more  than  two  years,  or  both.  Each  inde- 
pendent transaction  constituting  a  violation  of, 
or  failure  to  observe,  any  of  the  provisions  of  this 
Act,  or  any  order  entered  in  pursuance  hereof, 
shall  constitute  a  separate  offense.  For  the  tak- 
ing or  conversion  to  his  own  use  of  the  embezzle- 
ment of  money  or  property  derived  from  or  used 
in  connection  with  the  possession,  use,  or  opera- 
tion of  said  railroads  or  transportation  systems, 
the  criminal  statutes  of  the  United  States,  as  well 
as  the  criminal  statutes  of  the  various  States 
where  applicable,  shall  apply  to  all  officers,  agents, 
and  employees  engaged  in  said  railroad  and 
transportation  service,  while  the  same  is  under 
federal  control,  to  the  same  extent  as  to  persons 
employed  in  the  regular  service  of  the  United 
States.  Prosecutions  for  violations  of  this  Act 
or  of  any  order  entered  hereunder  shall  be  in  the 
district  courts  of  the  United  States,  under  the 


AMERICAN  RAILROADS  325 

direction  of  the  Attorney  General,  in  accordance 
with  the  procedure  for  the  collection  and  impos- 
ing of  fines  and  penalties  now  existing  in  said 
courts. 

Sec.  12.  That  moneys  and  other  properties  de- 
rived from  the  operation  of  the  carriers  during 
federal  control  are  hereby  declared  to  be  the  prop- 
erty of  the  United  States.  Unless  otherwise 
directed  by  the  President,  such  moneys  shall  not 
be  covered  into  the  Treasury,  but  such  moneys 
and  property  shall  remain  in  the  custody  of  the 
same  officers,  and  the  accounting  thereof  shall  be 
in  the  same  manner  and  form  as  before  federal 
control.  Disbursements  therefrom  shall,  without 
further  appropriation,  be  made  in  the  same  man- 
ner as  before  federal  control  and  for  such 
purposes  as  under  the  Interstate  Commerce  Com- 
mission classification  of  accounts  in  force  on 
December  twenty-seventh,  nineteen  hundred  and 
seventeen,  are  chargeable  to  operating  expenses 
or  to  railway  tax  accruals  and  for  such  other  pur- 
poses in  connection  with  federal  control  as  the 
President  may  direct,  except  that  taxes  under 
Titles  One  and  Two  of  the  act  entitled  ''An  act 
to  pro\dde  revenue  to  defray  war  expenses,  and 
for  other  purposes,"  approved  October  third, 
nineteen  hundred  and  seventeen,  or  any  act  in 
addition  thereto  or  in  amendment  thereof,  shall 
be  paid  by  the  carrier  out  of  its  own  funds.  If 
federal  control  begins  or  ends  during  the  tax 
year  for  which  any  taxes  so  chargeable  to  railway 
tax  accruals  are  assessed,  the  taxes  for  such  year 
shall  be  apportioned  to  the  date  of  the  beginning 


326  AMERICAN  RAILROADS 

or  ending  of  such  federal  control,  and  disburse- 
ments shall  be  made  only  for  that  portion  of  such 
taxes  as  is  due  for  the  part  of  such  tax  year  which 
falls  within  the  period  of  federal  control. 

At  such  periods  as  the  President  may  direct, 
the  books  shall  be  closed  and  the  balance  of  rev- 
enues over  disbursements  shall  be  covered  into 
the  Treasury  of  the  United  States  to  the  credit 
of  the  revolving  fund  created  by  this  act.  If 
such  revenues  are  insufficient  to  meet  such  dis- 
bursements, the  deficit  shall  be  paid  out  of  such 
revolving  fund  in  such  manner  as  the  President 
may  direct. 

Sec.  13.  That  all  pending  cases  in  the  courts 
of  the  United  States  affecting  railroads  or  other 
transportation  systems  brought  under  the  act  to 
regulate  commerce,  approved  February  fourth, 
eighteen  hundred  and  eighty-seven,  as  amended 
and  supplemented,  including  the  commodities 
clause,  so  called,  or  under  the  act  to  protect  trade 
and  commerce  against  unlawful  restraints  and 
monopolies,  approved  July  second,  eighteen  hun- 
dred and  ninety,  and  amendments  thereto,  shall 
proceed  to  final  determination  as  soon  as  may  be, 
as  if  the  United  States  had  not  assumed  control 
of  transportation  systems;  but  in  any  such  case 
the  court  having  jurisdiction  may,  upon  the  appli- 
cation of  the  United  States,  stay  execution  of 
final  judgment  or  decree  until  such  time  as  it 
shall  deem  proper. 

Sec.  14.  That  the  federal  control  of  railroads 
and  transportation  systems  herein  and  heretofore 


AMERICAN  RAILROADS  327 

provided  for  shall  continue  for  and  during  the 
period  of  the  war  and  for  a  reasonable  time  there- 
after, which  shall  not  exceed  one  year  and  nine 
mouths  next  following  the  date  of  the  proclama- 
tion by  the  President  of  the  exchange  of  ratifica- 
tions of  the  treaty  of  peace:  Provided,  however, 
That  the  President  may,  prior  to  July  first,  nine- 
teen hundred  and  eighteen,  relinquish  control  of 
all  or  any  part  of  any  railroad  or  system  of  trans- 
portation, further  federal  control  of  which  the 
President  shall  deem  not  needful  or  desirable; 
and  the  President  may  at  any  time  during  the 
period  of  federal  control  agree  with  the  owners 
thereof  to  relinquish  all  or  any  part  of  any  rail- 
road or  system  of  transportation.  The  President 
may  relinquish  all  railroads  and  systems  of 
transportation  under  federal  control  at  any  time 
he  shall  deem  such  action  needful  or  desirable. 
No  right  to  compensation  shall  accrue  to  such 
owners  from  and  after  the  date  of  relinquishment 
for  the  property  so  relinquished. 

Sec.  15.  That  nothing  in  this  act  shall  be  con- 
strued to  amend,  repeal,  impair,  or  affect  the 
existing  laws  or  powers  of  the  States  in  relation 
to  taxation  or  the  lawful  police  regulations  of  the 
several  States,  except  wherein  such  laws,  powers, 
or  regulations  may  affect  the  transportation  of 
troops,  war  materials.  Government  supplies,  or 
the  issue  of  stocks  and  bonds. 

Sec.  16.  That  this  act  is  expressly  declared  to 
be  emergency  legislation  enacted  to  meet  condi- 
tions growing  out  of  war;  and  nothing  herein  is 


328  AMERICAN  RAILROADS 

to  be  construed  as  expressing  or  prejudicing  the 
future  policy  of  the  Federal  Government  con- 
cerning the  ownership,  control,  or  regulation  of 
carriers  or  the  method  or  basis  of  the  capitaliza- 
tion thereof. 

Approved,  March  21,  1918. 


STANDARD  CONTRACT 

[Form  A,  October  22,  1918. — For  companies  without  subsidiaries.] 

Agreemknt  Between  the  Director  General  of  Rail- 
roads AND  the Company 

Preamble  and  Eecitals 

This  Agreement,  made  this day 

of ,  1918,  between  William 

G.  McAdoo,  Director  General  of  Railroads,  here- 
inafter called  the  Director  General,  acting  on 
behalf  of  the  United  States  and  the  President, 
under  the  powers  conferred  by  the  proclamations 
of  the  President  hereinafter  referred  to,  and  the 

Company, 

a  corporation  duly  organized  under  the  laws  of 

the   State(s)    of , 

hereinafter  called  the  Company : 

Witnesseth  that — 

(a)  Whereas  by  a  proclamation  dated  Decem- 
ber 26,  1917,  the  President,  acting  under  the 
powers  conferred  on  him  by  the  Constitution  and 
laws  of  the  United  States,  by  the  joint  resolutions 
of  the  Senate  and  House  of  Representatives  bear- 
ing date  April  6  and  December  7,  1917,  respec- 
tively, and  particularly  under  the  powers  con- 
ferred by  section  1  of  the  act  of  Congress 
approved  August  29,  1916,  entitled  ''An  act  mak- 
ing appropriations  for  the  support  of  the  Army 
for  the  fiscal  year  ending  June  30,  1917,  and  for 
other  purposes,"  took  possession  and  assumed 

329 


330  AMERICAN  RAILROADS 

control  at  12  o'clock  noon  on  December  28,  1917, 
of  certain  railroads  and  systems  of  transporta- 
tion, including  the  railroad  and  transportation 
system  of  the  Company  and  the  appurtenances 
thereof,  and  directed  that  the  possession,  control, 
operation,  and  utilization  of  the  transportation 
systems  thus  taken  should  be  exercised  by  and 
through  William  G.  McAdoo,  appointed  Director 
General  of  Railroads ;  and 

(h)  Whereas  the  Congress  of  the  United 
States,  by  an  act  approved  March  21,  1918,  here- 
inafter called  the  federal  control  act,  has  author- 
ized the  President  to  enter  into  agreements  with 
the  companies  owning  the  railroads  and  systems 
thus  taken  over  for  the  maintenance  and  upkeep 
of  the  same  during  the  period  of  federal  control, 
for  the  determination  of  the  rights  and  obligations 
of  the  parties  to  the  agreement  arising  from  or 
out  of  federal  control,  including  the  compensation 
to  be  received  or  guaranteed,  and  for  other  pur- 
poses, as  in  said  act  more  fully  set  out,  and 
authorize  the  President  to  exercise  any  of  the 
powers  by  said  act  or  theretofore  granted  him 
with  relation  to  federal  control  through  such 
agencies  as  he  might  determine ;  and 

(c)  Whereas  by  a  proclamation  dated  March 
29,  1918,  the  President,  acting  under  the  federal 
control  act  and  all  other  powers  him  thereto 
enabling,  authorized  the  Director  General,  either 
personally  or  through  such  di\'isions,  agencies,  or 
persons  as  he  may  appoint,  and  in  his  own  name 
or  in  the  name  of  such  divisions,  agencies,  or 


AMERICAN  RAILROADS  381 

persons,  or  in  the  name  of  the  President,  to  agree 
with  the  carriers,  or  any  of  them,  or  with  any 
other  person  in  interest,  upon  the  amount  of  com- 
pensation to  be  paid  pursuant  to  law,  and  to  sign, 
seal,  and  deliver  in  his  own  name  or  in  the  name 
of  the  President  or  in  the  name  of  the  United 
States  such  agreements  as  may  be  necessary  and 
expedient  with  the  several  carriers  or  other  per- 
sons in  interest  respecting  compensation,  or  any 
other  matter  concerning  which  it  may  be  neces- 
sary or  expedient  to  deal,  and  to  make  any  and 
all  contracts,  agreements,  or  obligations  necessary 
or  expedient  and  to  issue  any  and  all  orders  which 
may  in  any  way  be  found  necessary  and  expedient 
in  connection  with  the  federal  control  of  systems 
of  transportation,  railroads,  and  inland  water- 
ways as  fully  in  all  respects  as  the  President  is 
authorized  to  do,  and  generally  to  do  and  perform 
all  and  singular  the  acts  and  things  and  to  exercise 
all  and  singular  the  powers  and  duties  which  in 
and  by  the  said  act,  or  any  other  act  in  relation  to 
the  subject  thereof,  the  President  is  authorized  to 
do  and  perform ;  and 

(d)  Whereas  the  Interstate  Commerce  Com- 
noission  has  certified  to  the  President  that  the 
amount  of  the  average  annual  railway  operating 
income  of  the  Company,  computed  in  the  manner 
provided  in  section  1  of  the  federal  control  act, 

is dollars  and cents 

($ ),  subject  to  such  changes  and  correc- 
tions as  the  Commission  may  hereafter  determine 
and  certify  to  be  requisite  in  order  that  the  ac- 
counts and  reports  of  the  Company  used  by  the 


332  AMERICAN  RAILROADS 

Commission  as  the  basis  of  computing  said  aver- 
age annual  railway  operating  income  may  be 
brought  into  conformity  with  the  accounting  rules 
or  regulations  of  the  Commission  in  force  at  the 
time  of  such  accounting,  or  in  order  to  correct 
computations  based  on  such  accounts  or  reports. 

Now,  Therefore,  the  parties  hereto,  each,  in 
consideration  of  the  agreements  of  the  other 
herein  contained,  do  hereby  covenant  and  agree  to 
and  with  each  other  as  follows: 

Section  1. — Peivity,  Alterations,  Definitions,  Etc. 

Sec.  1.  (a)  This  agreement  shall  be  binding 
upon  the  United  States,  the  Director  General  and 
his  successors,  and  upon  the  Company,  its  suc- 
cessors, and  assigns. 

This  agreement  shall  not  be  construed  as  creat- 
ing any  right,  claim,  privilege,  or  benefit  against 
either  party  hereto  in  favor  of  any  State  or  any 
subdivision  thereof,  or  of  any  individual  or  cor- 
poration other  than  the  parties  hereto. 

(b)  The  provisions  of  this  agreement  may  be 
altered,  amended,  or  added  to  by  and  only  by 
mutual  consent  signified  by  instruments  in  writ- 
ing signed  by  the  Director  General  and  by  some 
officer  of  the  Company  thereto  duly  authorized 
by  the  Board  of  Directors  of  the  Company. 

(c)  "V\^erever  in  this  agreement  the  word 
'' Commission"  is  used  it  shall  be  understood 
as  meaning  the  Interstate  Commerce  Commission, 
acting  by  divisions  or  otherwise  as  authorized  by 


AMERICAN  RAILROADS  333 

law ;  but  either  party  shall  have  the  right  to  have 
the  decision  of  any  division  reviewed  by  the  Com- 
mission sitting  as  a  whole. 

{d)  Wherever  in  this  agreement  the  words 
'^federal  control"  are  used  to  indicate  a  period  of 
time,  they  shall  be  understood  as  meaning  the 
period  from  12  o'clock  midnight  of  December  31, 
1917,  to  and  including  the  day  and  hour  on  which 
said  control  shall  cease. 

(e)  Wherever  in  this  agreement  the  words 
''test  period"  are  used,  they  shall  be  understood 
as  meaning  the  period  between  July  1,  1914,  and 
June  30,  1917,  both  inclusive. 

(/)  Wherever  in  this  agreement  the  words 
** standard  return"  are  used,  they  shall  be  under- 
stood as  meaning  the  average  annual  railway 
operating  income  of  the  Company,  computed  in 
the  manner  provided  in  section  1  of  the  federal 
control  act,  and  ascertained  and  certified  by  the 
Commission. 

{g)  Wherever  in  this  agreement  the  words 
"Director  General"  are  used,  they  shall  be  under- 
stood as  designating  William  G.  McAdoo,  or  such 
other  person  as  the  President  may  from  time  to 
time  appoint  to  exercise  the  powers  conferred  on 
him  by  law  with  relation  to  federal  control,  or 
such  agents  or  agencies  as  the  Director  General 
may  from  time  to  time  appoint  for  the  purpose; 
and  wherever  by  this  agreement  any  notice  is  to 
be  given  by  the  Director  General,  the  same  may  be 


884  AMERICAN   RAILROADS 

given  in  his  name  by  any  subordinate  thereto  duly 
authorized. 

{h)  Wherever  the  property  of  the  company  is 
referred  to  in  this  agreement  it  shall  be  under- 
stood as  including  all  the  property  described  in 
paragraph  (a)  of  section  2  hereof,  whether  owned 
by  or  leased  to  the  Company,  and,  where  the  con- 
text permits,  all  additions  or  betterments  thereto 
or  extensions  thereof  made  during  federal  con- 
trol ;  and  as  to  all  such  leased  property  the  Com- 
pany shall  have  the  benefit  of  and  be  subject  to  all 
the  obligations  and  provisions  of  this  agreement 
and  shall  be  subject  to  all  duties  imposed  by  law 
in  respect  of  such  leased  property. 

(i)  The  descriptive  words  at  the  heads  of  the 
several  sections  of  this  agreement  and  the  table  of 
contents  are  inserted  for  convenience  merely,  and 
are  not  to  be  used  in  the  construction  of  the 
agreement. 

Section  2. — Property  Taken  Over 

Sec.  2.  The  Company's  railroad  and  system  of 
transportation  of  which  the  President  has  taken 
over  possession,  use,  control,  and  operation  shall 
be  considered  as  including: 

{a)  The  following  roads  and  properties: 


together  with  all  branches  and  tracks,  trackage, 
bridge,  and  terminal  rights,  and  lines  of  railroad 


AMERICAN  RAILROADS  335 

owned  by  or  leased  to  and  operated  by  the  Com- 
pany as  a  part  of  its  system  of  transportation, 
and  all  other  property  of  the  Company  with  the 
appurtenances  thereof,  whether  included  in  the 
foregoing  list  or  not,  the  revenues  of  which  were 
used,  or  which,  if  the  property  had  been  then 
owned  by  or  leased  to  it  and  had  then  been  rev- 
enue bearing,  would  have  been  used,  in  computing 
the  Company's  standard  return. 

The  Company  reserves  to  itself  the  benefit  of 
all  leases  (and  of  all  rents  and  revenues  accruing 
therefrom),  of  parts  of  its  right  of  way,  station 
grounds,  and  other  property,  the  revenues  from 
which  under  the  accounting  rules  of  the  Commis- 
sion in  force  during  the  test  period  were  properly 
creditable  to  *' miscellaneous  rent  income"  or 
** miscellaneous  income."  The  Company  grants 
to  the  Director  General  all  its  rights  to  terminate 
leases  of  any  part  of  its  right  of  way,  yards,  or 
station  grounds,  and  to  occupy  and  use  the  prem- 
ises of  any  such  lessee  when,  in  his  judgment,  the 
same  is  required  for  operating  purposes.  The 
Company  shall  have  for  its  own  benefit  the  right 
to  lease  for  industrial  sites  or  other  purposes 
such  portion  of  its  right  of  way,  yards,  or  station 
grounds,  or  structures  thereon,  as  are  not  re- 
quired by  the  Director  General  for  operating  pur- 
poses, and  to  receive  and  enjoy  the  rentals  there- 
from, subject  to  the  right  of  the  Director  General 
to  cancel  any  such  lease  and  to  occupy  the 
premises  or  structures  whenever,  in  his  judgment, 
the  same  are  necessary  for  operating  purposes. 
All  expenses  connected  with  any  such  property 
heretofore  or  hereafter  leased  or  otherwise  oc- 


386  AMERICAN  RAILROADS 

cupied,  as  in  this  paragraph  provided,  including 
taxes  thereon  which  during  the  test  period  were 
not  charged  to  railway  tax  accruals,  shall  be  paid 
by  the  Company  while  receiving  the  revenues 
therefrom. 

(b)  All  materials  and  supplies  on  hand  at  mid- 
night December  31,  1917 

(c)  All  balances  in  the  account  or  accounts 
representing  the  total  of  "Net  balance  receivable 
from  agents  and  conductors"  as  of  midnight 
December  31,  1917. 

Section  3. — Acceptance 

Sec.  3.  (a)  The  Company  accepts  all  the  terms 
and  conditions  of  the  federal  control  act  and  any 
regulation  or  order  made  by  or  through  the  Presi- 
dent under  authority  of  said  act  or  of  that  portion 
of  the  act  approved  August  29, 1916,  referred  to  in 
paragraph  (a)  of  the  preamble  to  this  agreement 
which  authorizes  the  President  in  time  of  war  to 
take  possession,  assume  control,  and  utilize  sys- 
tems of  transportation ;  and  the  Company  further 
and  expressly  accepts  the  covenants  and  obliga- 
tions of  the  Director  General  in  this  agreement 
set  out  and  the  rights  arising  thereunder  in  full 
adjustment,  settlement,  satisfaction,  and  dis- 
charge of  any  and  all  claims  and  rights,  at  law  or 
in  equity,  which  it  now  has  or  hereafter  can  have, 
otherwise  than  under  this  agreement,  against 
the  United  States,  the  President,  the  Director 
General,  or  any  agent  or  agency  thereof,  for  com- 


AMERICAN  RAILROADS  837 

pensation  under  the  Constitution  and  laws  of  the 
United  States  for  the  taldng  possession  of  its 
property,  and  for  the  use,  control,  and  operation 
thereof  during  federal  control,  and  for  any  and  all 
loss  and  damage  to  its  business  or  trafl&c  by  rea- 
son of  the  diversion  thereof  or  otherwise  which 
has  been  or  may  be  caused  by  said  taking  or  by 
said  possession,  use,  control,  and  operation. 

No  claim  is  made  by  the  Company  for  compen- 
sation for  the  period  between  noon  of  December 
28  and  midnight  of  December  31,  1917;  and  the 
revenues  of  said  period  shall  belong  to  the  Com- 
pany, and  the  expenses  thereof  shall  be  paid  by  the 
Company,  allocated  in  both  cases  as  provided  in 
paragraph  (6)  of  section  4  hereof. 

{h)  The  Company,  on  its  own  initiative  or  upon 
the  request  of  the  Director  General,  shall  take  all 
appropriate  and  necessary  corporate  action  to 
carry  out  the  obligations  assumed  by  it  in  this 
agreement  or  lawfully  imposed  upon  it  by  or  pur- 
suant to  the  proclamation  of  December  26,  1917, 
or  by  the  federal  control  act. 

{e)  The  federal  control  act  being  in  section  16 
thereof  expressly  declared  to  be  emergency  legis- 
lation enacted  to  meet  conditions  growing  out  of 
war,  nothing  in  this  agreement  shall  be  construed 
as  expressing  or  prejudicing  the  future  policy  of 
the  Federal  Government  concerning  the  owner- 
ship, control,  or  regulation  of  the  Company,  or 
the  method  or  basis  of  the  capitalization  thereof, 
and  the  recitals  or  provisions  of  this  agreement 
shall  not  be  used,  as  evidence  or  otherwise,  by  or 


338  AMERICAN  RAILROADS 

against  either  party  hereto  in  any  pending  or 
future  proceeding  which  involves  the  acquisition 
or  valuation  of  the  Company's  property  or  any 
part  thereof;  but  nothing  in  this  paragraph  shall 
be  taken  or  construed  as  affecting  the  settlement 
and  discharge  contained  in  paragraph  (a)  of  this 
section,  nor  as  limiting  or  qualifying  any  of  the 
provisions  of  said  paragraph  for  the  purposes 
thereof,  nor  as  limiting  the  use  of  this  agreement 
as  evidence  in  any  proceeding  under  this  agree- 
ment or  under  the  federal  control  act. 

Section  4. — Operation  and  Accounting  During 
Federal  Control 

Sec.  4.  (a)  All  amounts  received  by  the  Director 
General  under  paragraph  (c)  of  section  2  hereof 
and  all  other  amounts  whether  received  from  the 
Company  in  cash  or  collected  or  realized  upon  by 
him  from  current  operating  assets  belonging  to 
the  Company  or  arising  from  railway  operations 
prior  to  midnight  of  December  31,  1917,  shall  be 
credited  by  him  to  the  Company;  and  the  Director 
General  shall,  to  the  extent  of  the  cash  so  re- 
ceived or  realized,  pay  and  charge  to  the  Company 
all  expenses  arising  out  of  railway  operations 
prior  to  January  1,  1918,  including  reparation 
claims,  and,  unless  objected  to  by  the  Company, 
may  pay  and  charge  to  the  Company  any  of  such 
expenses,  including  reparation  claims,  in  excess 
of  the  cash  so  received  or  realized.  Balances  of 
the  above  accounts  shall  be  struck  quarterly  on 
the  last  days  of  March,  June,  September,  and 
December  of  each  year,   and  the  cash  balance 


AMERICAN  RAILROADS  339 

found  on  such  adjustments  to  be  due  either  party 
shall  be  then  payable  and,  if  not  paid,  shall  bear 
interest  at  the  rate  of  6  per  cent  per  annum,  un- 
less the  parties  shall  agree  upon  a  different  rate ; 
except  that  the  rate  of  interest  on  any  portion 
of  a  balance  found  due  to  the  Company  which  is 
derived  from  cash  in  bank  to  the  credit  of  such 
Company  on  interest,  shall  be  adjusted  in  each 
case  independently  of  this  contract  as  the  parties 
may  agree. 

(b)  Railway  operating  expenses,  reparation 
and  other  claims,  hire  of  equipment  and  joint 
facility  rents  shall  be  allocated  with  reference 
to  the  time  when  incurred  as  between  the  period 
prior  and  subsequent  to  midnight  of  December  31, 
1917,  and  as  between  the  period  of  Federal  control 
and  the  period  subsequent  thereto.  Railway 
operating  revenues  shall  be  allocated  as  between 
the  period  prior  and  subsequent  to  midnight  of 
December  31,  1917,  in  accordance  with  the  estab- 
lished accrual  practises  of  the  Company;  except 
that  where  prior  to  midnight  of  December  31, 
1917,  the  Company's  part  of  a  service  on  through 
business  had  been  completed  or  carload  lots  on 
its  own  line  had  reached  destination,  the  revenue 
of  the  Company  for  such  service  shall  be  allocated 
to  it;  but  as  to  classes  of  traflBc  where  in  the 
opinion  of  the  Director  General  such  allocation 
will  involve  undue  delay  or  undue  absorption  of 
accounting  labor,  such  revenues  shall  be  allocated 
in  accordance  with  the  established  accrual 
practises  of  the  Company.     Like  methods  of  ac- 


340  AMERICAN  RAILROADS 

cruing  and  allocating  such  revenues  shall  be  made 
at  the  end  of  federal  control. 

(c)  All  expenditures  made  by  the  Director  Gen- 
eral during  federal  control  for  additions  and 
betterments,  exclusive  of  equipment,  or  for  ex- 
tensions begun  prior  to  January  1,  1918,  shall  be 
charged  to  the  Company,  and  if  the  completion 
of  any  such  addition,  betterment,  or  extension  is 
approved  or  ordered  by  the  Director  General,  the 
Company  shall  be  entitled  under  the  provisions 
of  paragraph  (d)  oi  section  7  hereof  to  interest  on 
the  cost  thereof  from  the  completion  of  the  work ; 
but  no  interest  (except  to  the  extent  that  the  same 
may  be  allowed  and  included  in  the  compensation 
provided  for  in  paragraph  (a)  of  section  7  hereof) 
shall  be  due  the  Company  upon  any  such  expendi- 
tures for  work  done  prior  to  January  1, 1918.  Pay- 
ments for  all  equipment  ordered  or  under  con- 
struction by  the  Company  prior  to  January  1, 
1918,  but  delivered  on  or  after  that  date,  shall 
also  be  considered  as  expenditures  made  by  order 
or  approval  of  the  Director  General  under  para- 
graph (d)  of  section  7  hereof.  Interest  during 
construction  payable  under  this  paragraph,  and 
also  interest  during  construction  on  the  cost  of 
any  additions,  betterments,  and  road  extensions 
made  by  the  Company  or  «nt  its  expense  to  the 
Company's  property  during  federal  control,  shall 
be  included  in  the  cost  of  the  work. 

{d)  Cash  receipts  or  disbursements  and  other 
items  arising  out  of  transactions  which  do  not 
enter  into  or  form  a  part  of  those  used  in  deter- 


AMERICAN  RAILROADS  341 

mining  the  Company's  standard  return  shall  not 
be  received  or  paid  by  the  Director  General  un- 
less such  transactions  are  negotiated  or  conducted 
by  his  order  for  account  of  the  Company  and  with 
its  consent.  When  moneys  are  so  received  or 
paid  by  the  Director  General  in  connection  with 
such  corporate  transactions  they  shall  be  credited 
or  charged  to  the  Company.  There  shall  be  an 
accounting  of  the  amounts  due  by  one  party  or 
the  other  under  this  paragraph  at  fhe  end  of  each 
quarter  year  of  federal  control,  and  the  amount 
so  found  due  shall  be  then  payable  and  if  not  paid 
shall  bear  interest  as  provided  in  paragraph  (a) 
of  this  section. 

(e)  All  sums  paid  by  the  Director  General  to 
maintain  pension  funds  or  pension  obligations 
or  practises,  and  all  contributions  to  Young  Men's 
Christian  Associations  of  employees,  employees' 
savings  funds,  relief  funds  or  associations,  read- 
ing rooms,  or  health,  accident,  or  death  benefits 
for  employees,  shall  be  treated  as  a  part  of  rail- 
way operating  expenses  during  federal  control. 

(/)  All  salaries  and  expenditures  incurred  by 
the  Company  during  federal  control  for  purposes 
which  relate  to  the  existence  and  maintenance  of 
the  corporation,  or  to  the  properties  of  the  Com- 
pany not  taken  over  by  the  President,  or  to  nego- 
tiations, contracts,  valuations,  or  any  business 
controversy  with  the  Government  or  any  branch 
thereof,  and  which  are  not  specially  authorized 
by  the  Director  General,  shall  be  borne  by  the 
Company;  except  that  the  expenses  of  valuation 


342  AMERICAN  RAILROADS 

now  being  made  by  the  Commission  to  the  extent 
that  they  are,  in  the  opinion  of  the  Director  Gen- 
eral, necessary  to  comply  with  the  valuation  or- 
ders and  other  requirements  of  the  Commission 
and  to  the  cooperation  of  the  Company  in  the 
making  of  such  valuation,  shall  be  paid  by  the 
Director  General  as  a  part  of  railway  operating 
expenses.  If  the  Company  is  dissatisfied  with  the 
ruling  of  the  General  Director  it  may  appeal  to 
the  Commission,  whose  decision  shall  be  final. 

(g)  The  Director  General  shall  furnish  for  ad- 
ditions, betterments  and  road  extensions  to  the 
Company's  property  approved  or  ordered  by  him 
any  of  the  materials  and  supplies  taken  over  un- 
der paragraph  (b)  of  section  2  hereof,  or  pur- 
chased by  him  and  held  for  use  in  connection  with 
the  Company's  property,  in  so  far  as,  in  his  judg- 
ment, he  can  do  so  with  due  regard  to  his  own 
requirements.  Materials  and  supplies  so  fur- 
nished shall  be  charged  to  the  Company  at  cost. 

(h)  The  Director  General  shall  at  his  option  be 
substituted  for  the  period  of  federal  control  in 
the  place  of  the  Company  in  respect  of  the  bene- 
fits and  obligations  of  contracts  relating  to  opera- 
tion in  force  January  1, 1918,  (including  contracts 
made  by  subsidiaries  for  the  use  and  benefit  of 
the  Company  and  the  right  to  abrogate  or  change 
and  make  new  contracts  with  express  companies 
for  the  period  of  federal  control),  except  as  to 
contracts  between  the  Company  and  subsidian^ 
companies  which  shall  be  considered  and  treated 
as  arrangements  or  practises;  and  the  Director 


AMERICAN  RAILROADS  343 

General  shall  in  like  manner  at  his  option  be  sub- 
stituted for  such  period  in  respect  of  the  benefits 
and  obligations  of  arrangements  and  practises  in 
force  during  the  test  period  in  regard  to  fuel, 
materials,  and  supplies  for  the  operation  of  the 
property  described  in  paragraph  (a)  of  section  2 
hereof  and  of  any  additions,  betterments,  and 
road  extensions  thereto,  obtained  from  any  mine, 
oil  field,  or  other  source  of  supply  owned  or  con- 
trolled by  the  Company,  it  being  understood  that 
under  such  arrangements  or  practises,  if  availed 
of  by  the  Director  General,  he  shall,  to  the  extent 
necessary  to  off-set  any  increase  in  the  standard 
return  growing  out  of  the  furnishing  by  the  Com- 
pany or  of  its  subsidiaries,  during  the  test  period, 
of  fuel,  materials,  and  supplies  under  an  arrange- 
ment or  practise  at  less  than  the  then  cost  or  the 
then  market  value  thereof  for  railroad  purposes, 
be  charged  for  such  fuel,  materials,  and  supplies 
a  price  expressed  in  dollars  or  cents  per  unit  be- 
low or  above  the  then  cost  or  the  then  market 
value  thereof  for  railroad  purposes  (as  the 
practise  of  the  Company  may  have  been)  in  the 
same  amount  that  the  prices  charged  the  Com- 
pany during  the  test  period  were  below  or  above 
the  then  cost  or  the  then  market  value  thereof 
for  railroad  purposes;  and  at  the  request  of  the 
Director  General  or  the  Company  the  prices  for 
fuel  or  materials  supplied  between  December  31, 
1917,  and  the  execution  of  this  contract  shall  be 
adjusted  on  the  foregoing  basis:  Provided,  hoiu- 
ever,  That  a  source  of  supply  which  the  Company 
had  acquired  to  safeguard  its  own  operations 
shall  not  be  depleted  or  reduced  for  use  on  other 


344  AMERICAN  RAILROADS 

transportation  systems,  except  in  cases  of  emer- 
gency to  be  determined  by  the  Director  General, 
in  which  event  the  quantity  so  used  on  other  trans- 
portation systems  shall  be  accounted  for  to  the 
Company  at  the  fair  value  thereof :  And  provided 
further,  That  materials  and  supplies  secured  un- 
der contracts  which  the  Company  had  made  for  its 
own  operations  shall,  so  far  as  practicable,  be  used 
on  the  Company's  property,  and  that,  if  used  on 
any  other  transportation  system,  materials  and 
supplies  of  like  character  shall  be  furnished  by 
the  Director  General  for  use  in  making  such  ad- 
ditions, betterments,  and  road  extensions  as  shall 
be  chargeable  to  the  Company,  and  shall  be 
charged  at  cost  under  such  contracts. 

(i)  The  Director  General  shall  pay,  or  save  the 
Company  harmless  from,  all  expenses  incident  to 
or  growing  out  of  the  possession,  operation,  and 
use  of  the  property  taken  over  during  federal 
control,  except  the  expenses  which  under  this 
agreement  are  to  be  borne  by  the  Company.  He 
shall  also  pay  or  save  the  Company  harmless 
from  all  rents  called  in  the  monthly  reports  to 
the  Commission  equipment  rents  or  joint-facility 
rents,  and  all  judgments  or  decrees  that  may 
be  recovered  or  issued  against,  and  all  fines  and 
penalties  that  may  be  imposed  upon,  the  Company 
by  reason  of  any  cause  of  action  arising  out  of 
federal  control,  or  of  anything  done  or  omitted 
in  the  possession,  operation,  use,  or  control  of 
the  Company's  property  during  federal  control, 
except  judgments  or  decrees  founded  on  obliga- 
tions of  the  Company  to  the  Director  General  or 
the  United  States. 


AMERICAN  RAILROADS  345 

(j)  Except  as  otherwise  provided  in  this  agree- 
ment, the  Director  General  shall  save  the  com- 
pany harmless  from  any  and  all  liability,  loss,  or 
expense  resulting  from  or  incident  to  any  claim 
made  against  the  Company  growing  out  of  any- 
thing done  or  omitted  during  federal  control  in 
connection  with,  or  incident  to,  operation  or  ex- 
isting contracts  relating  to  operation,  and  shall  do 
and  perform,  so  far  as  is  requisite  under  federal 
control  for  the  protection  of  the  Company,  all  and 
singular  the  things,  of  which  he  may  have  notice, 
necessary  and  appropriate  to  prevent,  because  of 
federal  control  or  of  anything  done  or  omitted 
thereunder,  the  forfeiture  or  loss  by  the  Company 
of  any  of  its  property  rights,  ordinance  rights, 
or  franchises,  or  of  its  trackage,  lease,  terminal, 
or  other  contracts  involving  a  facility  of  opera- 
tion; but  nothing  herein  contained  shall  be  con- 
strued to  require  the  Director  General  to  make 
any  capital  expenditure  necessary  to  preserve  a 
franchise  or  ordinance  right  not  heretofore 
availed  of  by  the  Company.  The  Director  Gen- 
eral shall  also  save  the  Company  harmless  from 
any  and  all  claims  for  breach  of  covenant  hereto- 
fore entered  into  by  the  Company  or  by  any  pred- 
ecessor in  title  or  interest  in  any  mortgage  or 
other  instrument  in  respect  to  insurance  against 
losses  by  fire. 

Nothing  in  this  or  in  the  preceding  paragraph 
shall  be  construed  to  be  an  assumption  by  the 
Director  General  of,  or  to  make  him  liable  on,  any 
obligation  of  the  Company  to  pay  a  debt  secured 
by  a  mortgage  or  any  rent  under  a  lease,  except 
rents  which  during  the  test  period  were  called  in 


346  AMERICAN  RAILROADS 

the  monthly  reports  to  the  Commission  equip- 
ment rents  and  joint  facility  rents  and  rents 
which  under  the  accounting  rules  of  the  Commis- 
sion ill  force  during  the  test  period  were  classified 
as  operating  expenses. 

The  Company  shall,  during  federal  control,  pay 
the  rents  of  any  property,  held  by  it  under  lease 
or  contract,  described  in  paragraph  (a)  of  section 
2  hereof,  except  the  rents  which  during  the  test 
period  were,  under  the  rules  of  the  Commission, 
classified  as  equipment  rents  or  joint  facility 
rents,  and  rents  which  were  classified  as  operating 
expenses;  which  excepted  rents  shall  be  paid  by 
the  Director  General.  If  the  lease  of,  or  right  to 
use,  any  property  described  in  paragraph  (a)  of 
said  section  2  expires  during  federal  control,  the 
Company  shall,  if  possible,  and  if  requested  by 
the  Director  General,  renew  the  same ;  the  rental, 
however,  of  property  in  the  excepted  classes  above 
mentioned  shall  be  paid  by  the  Director  General. 
The  Company  shall  pay  the  same  amount  of  rent 
as  was  payable  at  the  beginning  of  federal  con- 
trol for  other  property,  the  lease  of  or  right  to 
use  which  is  renewed  at  the  request  of  the  Direc- 
tor General,  but  any  increase  in  the  rental  of  such 
other  property  shall  be  paid  by  the  Director  Gen- 
eral. 

(k)  In  carrying  out  the  provisions  of  para- 
graphs (a),  (b),  (c),  and  (d)  of  this  section  and 
the  provisions  of  section  6  hereof  the  Director 
General  shall  not  settle  any  claim  by  or  against 
the  Company  against  the  objection  in  writing  of 
the  president  or  of  any  other  duly  authorized 


AMERICAN  RAILROADS  347 

officer  of  the  Company.  The  conduct  of  all  litiga- 
tion before  any  court  or  commission  arising  out 
of  such  disputed  claims,  or  out  of  operation  prior 
to  federal  control,  shall  be  in  charge  of  the  Direc- 
tor General's  legal  force  and  the  expense  thereof 
shall  be  paid  by  the  Director  General;  but  the 
Company  may,  at  its  own  expense,  employ  special 
counsel  in  connection  with  any  such  litigation. 

(l)  Nothing  in  this  agreement  shall  be  construed 
as  inconsistent  with  the  provision  in  section  10 
of  the  federal  control  act  that  no  process,  mesne 
or  final,  shall  be  levied  against  any  property  un- 
der federal  control,  nor  as  a  waiver  by  the  United 
States  of  any  claim  that  might  otherwise  be  made 
by  it  that  the  rights  of  any  State  or  subdivision 
thereof  or  of  any  individual  or  corporation  have 
been  abrogated  or  suspended  by  the  taking  over 
of  the  Company's  property  or  by  federal  control. 

(m)  The  Company  shall  have  the  right  at  all 
reasonable  times  to  inspect  the  books  and  ac- 
counts kept  by  the  Director  General  relating  to 
the  property  of  the  Company,  or  to  the  operation 
thereof,  and  the  Director  General  shall  during 
federal  control  furnish  the  Company  with  a 
copy  of  the  operating  reports  relating  to  its  prop- 
erty, and  as  soon  as  practicable  after  the  end  of 
each  fiscal  year  shall  furnish  to  the  Company  a 
complete  list  of  its  equipment  as  of  the  end  of  such 
fiscal  year. 


348  AMERICAN  RAILROADS 

Section  5. — ^Upkeep 

Sec.  5.  (a)  During  the  period  of  federal  control 
the  Director  General  shall,  annually,  as  nearly 
as  practicable,  expend  and  charge  to  railway 
operating  expenses,  either  in  payments  for  labor 
and  materials  or  by  payments  into  funds,  such 
sums  for  the  maintenance,  repair,  renewal,  re- 
tirement, and  depreciation  of  the  property  de- 
scribed in  paragraph  (a)  of  section  2  hereof  as 
may  be  requisite  in  order  that  such  property  may 
be  returned  to  the  Company  at  the  end  of  federal 
control  in  substantially  as  good  repair  and  in  sub- 
stantially as  complete  equipment  as  it  was  on 
January  1,  1918:  Provided,  however,  That  the 
annual  expenditure  and  charges  for  such  pur- 
poses during  the  period  of  federal  control  on  such 
property  and  the  fair  distribution  thereof  over  the 
same,  or  the  payment  into  funds  of  an  amount 
equal  in  the  aggregate  (subject  to  the  adjustments 
provided  in  paragraph  (c)  and  to  the  provisions 
of  paragraph  (e)  of  this  section)  to  the  average 
annual  expenditure  and  charges  for  such  purposes 
included  under  the  accounting  rules  of  the  Com- 
mission in  railway  operating  expenses  during  the 
test  period,  less  the  cost  of  fire  insurance  included 
therein,  shall  be  taken  as  a  full  compliance  with 
the  foregoing  covenant. 

(h)  The  Director  General  may  expend  such 
sums,  if  any,  in  addition  to  those  expended  and 
charged  under  paragraph  (o)  of  this  section  (sub- 
ject to  the  adjustments  provided  in  paragraph  (c) 
of  this  section)  as  may  be  requisite  for  the  safe 


AMERICAN  RAILROADS  349 

operation  of  the  property  described  in  paragraph 
(a)  of  section  2  hereof,  assuming  a  use  similar 
to  the  use  during  the  test  period  and  not  sub- 
stantially enhancing  the  cost  of  maintenance  over 
the  normal  standard  of  maintenance  of  railroads 
of  like  character  and  business  during  said  period ; 
and  the  amount,  if  any,  of  such  excess  expendi- 
tures during  federal  control  shall  be  made  good 
by  the  Company  as  provided  in  paragraph  (&)  of 
section  7  hereof. 

(c)  In  comparing  the  amounts  expended  and 
charged  under  the  provisions  of  paragraphs  (a) 
and  (  fc)  of  this  section  with  the  amounts  expended 
and  charged  during  the  test  period,  due  allowance 
shall  be  made  for  any  difference  that  may  exist 
between  the  cost  of  labor  and  materials  and  be- 
tween the  amount  of  property  taken  over  and  the 
average  for  the  test  period,  and,  as  to  paragraph 
(a),  for  any  difference  in  use  between  that  of  the 
test  period  and  during  federal  control  which  in  the 
opinion  of  the  Commission  is  substantial  enough 
to  be  considered,  so  that  the  result  shall  be,  as 
nearly  as  practicable,  the  same  relative  amount, 
character,  and  durability  of  physical  reparation. 

(d)  At  the  request  of  either  party  there  shall 
be  an  accounting  of  the  amounts  due  by  one  party 
or  the  other  under  paragraphs  (a)  and  (?>)  of  this 
section  at  the  end  of  each  year  of  federal  control 
and  at  the  end  of  federal  control. 

(e)  If  during  federal  control  any  of  the  prop- 
erty described  in  paragraph  (a)  of  section  2  here- 


850  AMERICAN  RAILROADS 

of  or  any  replacement  thereof  or  addition  thereto 
or  betterment  or  extension  thereof  is  destroyed  or 
damaged  otherwise  than  by  fire  or  public  enemies, 
and  is  not  restored  or  replaced  by  the  Director 
General,  he  shall  reimburse  the  Company  the 
value  of  the  property  destroyed  or  the  amount  of 
the  damage  at  the  time  of  the  loss,  and  the  cost 
of  restoration  or  replacement,  or  said  value  or 
damage,  as  the  case  may  be,  shall  be  charged  to 
annual  railway  operating  expenses;  it  being  un- 
derstood that  extraordinary  losses  caused  by 
floods,  explosions,  train  wrecks,  or  accident  are 
included  in  the  matters  covered  by  this  para- 
graph, while  ordinary  losses  due  to  such  causes 
are  included  in  the  matters  covered  by  paragraph 
(a)  of  this  section:  Provided,  however,  That  if 
the  Commission,  on  application  of  either  party 
and  after  giving  due  consideration  to  the  practise 
of  the  Company  during  the  test  period  in  respect 
to  such  matters  and  to  any  other  pertinent  facts 
and  circumstances,  determines  that  it  is  just  and 
reasonable  that  the  said  cost  or  value  shall  be 
apportioned  or  extended  over  a  period  of  more 
than  one  year,  this  shall  be  done,  and  so  much  of 
said  cost  or  value  as  may  be  apportioned  by  the 
Commission  over  the  period  subsequent  to  federal 
control,  shall  be  charged  to  the  Company  in  the 
final  accounting  at  the  end  of  federal  control  and 
shall  be  paid  by  it. 

If,  during  federal  control,  any  of  the  property 
described  in  paragraph  (a)  of  section  2  hereof  or 
any  replacement  thereof  or  addition  thereto  or 
betterment  or  extension  thereof  is  destroyed  or 


AMERICAN  RAILROADS  351 

damaged  by  fire,  and  is  not  restored  or  replaced 
by  the  Director  General,  he  shall  reimburse  the 
Company  the  value  of  the  property  destroyed  or 
the  amount  of  the  damage  at  the  time  of  the  fire ; 
and  the  cost  of  restoration  or  replacement  or  said 
value  or  damage,  as  the  case  may  be,  shall  be 
charged  to  annual  railway  operating  expenses,- 
but  the  same  shall  not  be  considered  a  charge  to 
such  expenses  for  the  purposes  specified  in  para- 
graph (a)  of  this  section. 

In  case  of  any  such  loss  or  damage  by  fire,  the 
Director  General  shall,  if  given  written  notice  of 
the  requirements  of  any  mortgage,  equipment 
lease,  or  trust  on  the  property  so  destroyed  or 
damaged,  make  such  restoration  or  replacement, 
or  pay  such  value  or  damage,  in  such  way  as  to 
meet  the  requirements  of  such  mortgage,  equip- 
ment lease,  or  trust  in  the  same  manner  as  would 
have  been  proper  in  applying  the  proceeds  of  in- 
surance on  such  property  if  it  had  been  insured  by 
the  Company  against  loss  or  damage  by  fire  in 
accordance  with  the  terms  of  such  instruments  of 
lien;  and  a  compliance  with  the  written  request 
of  the  Company  in  respect  thereof  shall  be  a  full 
acquittance  of  any  obligation  of  the  Director  Gen- 
eral in  the  premises. 

The  foregoing  parts  of  this  paragraph  are  sub- 
ject to  the  proviso  that  in  case  of  loss  or  damage 
any  additions  and  betterments  made  in  connection 
with  or  as  a  part  of  the  restoration  or  replace- 
ment of  property  damaged  or  destroyed  and 
chargeable  under  the  accounting  rules  of  the  Com- 
mission in  force  December  31,  1917,  to  investment 


862  AMERICAN  RAILROADS 

in  road  and  equipment,  shall  be  charged  to  and 
paid  bj^  the  Company. 

The  Director  General  shall  not  be  liable  to  the 
Company  for  any  loss  or  damage  due  to  the  acts 
of  public  enemies. 

(/)  If  any  additions,  betterments,  or  road  ex- 
tensions are  made  to  the  property  taken  over  or 
any  equipment  is  added  at  the  expense  of  the 
Company  and  with  the  approval  or  by  order  of 
the  Director  General  during  federal  control,  he 
shall  expend  and  charge  to  railway  operating  ex- 
penses such  sums  either  in  payments  for  labor 
and  materials  or  by  payments  into  funds,  as  may 
be  requisite  for  the  proper  maintenance,  repair, 
renewal,  retirement,  and  depreciation  of  such 
property  until  the  end  of  federal  control. 

(g)  The  Company  shall  have  the  right  to  in- 
spect its  property  at  all  reasonable  times  during 
federal  control,  and  the  Director  General  shall 
provide  reasonable  facilities  for  such  inspection. 

(h)  If  any  question  shall  arise,  either  during  or 
at  the  end  of  federal  control,  as  to  whether  the 
covenants  or  provisions  in  this  section  contained 
are  being  or  have  been  observed,  the  matter  in 
dispute  shall,  on  the  application  of  either  party, 
be  referred  to  the  Commission  which,  after  hear- 
ing, shall  make  such  findings  and  order  as  justice 
and  right  may  require,  which  shall  be  final  as  to 
the  questions  submitted  and  shall  be  binding  on 
and  observed  by  both  parties  hereto,  except  that 
either  party  may  take  any  question  of  law  to  the 
courts,  if  he  or  it  so  desires. 


AMERICAN  RAILROADS  363 

Section  6. — Taxes 

Sec.  6.  (a)  All  taxes  assessed  under  federal  or 
any  other  governmental  authority  for  the  period 
prior  to  January  1,  1918,  including  a  propor- 
tionate part  of  any  such  tax  assessed  after  Decem- 
ber 31, 1917,  for  a  period  which  includes  any  part 
of  1917  or  preceding  years,  and  unpaid  on  that 
date,  all  taxes  commonly  called  war  taxes  which 
have  been  or  may  be  assessed  against  the  Com- 
pany under  the  act  of  Congress  entitled  "An  Act 
to  provide  revenue  to  defray  war  expenses  and 
for  other  purposes,"  approved  October  3,  1917,  or 
under  any  act  in  addition  thereto  or  in  amend- 
ment thereof,  and  all  taxes  which  have  been  or 
may  be  assessed  on  property  under  construction, 
and  all  assessments  which  have  been  or  may  be 
made  for  public  improvements,  chargeable  under 
the  accounting  rules  of  the  Commission  in  force 
December  31,  1917,  to  investment  in  road  and 
equipment,  shall  be  paid  by  the  Company;  but 
upon  the  amount  thus  chargeable  to  investment 
interest  shall  be  paid  to  the  Company  during 
federal  control  at  the  rate  provided  in  paragraph 
(d)  of  section  7  hereof.  Taxes  assessed  during 
construction  on  additions,  betterments,  and  road 
extensions  made  by  the  Company  with  the  ap- 
proval or  by  order  of  the  Director  General  during 
federal  control,  shall  be  considered  a  part  of  the 
cost  of  such  additions,  betterments,  and  exten- 
sions and  shall,  under  the  provisions  of  para- 
graph (d)  of  section  7  hereof,  bear  interest  as  a 
part  of  such  cost  from  the  date  of  the  completion 
of  such  additions,  betterments,  or  extensions.    As- 


864  AMERICAN  RAILROADS 

sessmeiits  for  public  improvements  which  do  not 
become  a  part  of  the  property  taken  over  shall 
bear  interest  from  the  date  of  the  payment  of 
such  assessment. 

{b)  If  any  tax  or  assessment  which  under  this 
agreement  is  to  be  paid  by  the  Company  is  not 
paid  by  it  when  due,  the  same  may  be  paid  by  the 
Director  General  and  deducted  from  the  next  in- 
stallment of  compensation  due  under  section  7 
hereof.  If  any  taxes  properly  chargeable  to  the 
Director  General  have  been  or  shall  be  paid  by 
the  Company,  it  shall  be  duly  reimbursed  there- 
for. 

(c)  The  Director  General  shall  either  pay  out 
of  revenues  derived  from  railway  operation  dur- 
ing the  period  of  federal  control  or  shall  save  the 
Company  harmless  from  all  taxes  lawfully  as- 
sessed under  federal  or  any  other  governmental 
authority  for  any  part  of  said  period  on  the  prop- 
erty under  such  control,  or  on  the  right  to  operate 
as  a  carrier,  or  on  the  revenues  derived  from 
operation,  and  all  other  taxes  which  under  the 
accounting  rules  of  the  Commission  in  force 
December  31,  1917,  are  properly  chargeable  to 
"railway  tax  accruals,"  except  the  taxes  and  as- 
sessments for  which  provision  is  made  in  para- 
graph (a)  of  this  section.  The  Director  General 
shall  pay  or  save  the  Company  harmless  from  the 
expense  of  all  suits  respecting  the  classes  of  taxes 
payable  by  him  under  this  agreement. 


AMERICAN  RAILROADS  365 

(d)  If  any  such  tax  is  for  a  period  which  began 
before  January  1,  1918,  or  continues  beyond  the 
period  of  federal  control,  such  portion  of  such 
tax  as  may  be  apportionable  to  the  period  of  fed- 
eral control  shall  be  paid  by  the  Director  General, 
and  the  remainder  shall  be  paid  by  the  Company. 

(e)  Whenever  a  period  for  which  a  tax  is  as- 
sessed can  not  be  definitely  determined,  so  much 
of  such  tax  as  is  payable  in  any  calendar  year 
shall  be  treated  as  assessed  for  such  year. 

Section  7. — Compensation 

Sec.  7.  (a)  The  annual  compensation  guaranteed 
to  the  Company  under  section  1  of  the  federal 

control  act  shall  be  the  sum  of 

dollars  and cents  ($ )  dur- 
ing each  year  and  pro  rata  for  each  fractional 
part  of  a  year  of  federal  control,  subject,  how- 
ever, to  any  increase  or  decrease  in  the  standard 
return  hereafter  made  by  the  Commission  as  pro- 
vided in  paragraph  (d)  of  the  preamble  of  this 
agreement. 

(b)  The  said  compensation  shall  be  paid  to  the 
Company  quarterly  in  equal  installments  on  the 
last  days  of  March,  June,  September,  and  Decem- 
ber of  each  year  for  the  quarter  ending  therewith, 
except  that  the  first  three  installments  shall  be  due 
as  of  March  31,  1918,  June  30,  1918,  and  Septem- 
ber 30,  1918,  respectively,  but  shall  be  paid  upon 
the  execution  of  this  agreement;  but  from  each 
installment  there  may  be  deducted  any  amount 


366  AMERICAN  RAILROADS 

then  due  by  the  Company  under  paragraphs  (a) 
and  (d)  of.  section  4  hereof,  under  paragraph  (b) 
of  section  5  hereof,  and  under  paragraph  (h)  of 
section  6  hereof,  and  all  amounts  required  to 
reimburse  the  United  States  for  the  cost  of  ad- 
ditions and  betterments  made  to  the  property  of 
the  Company  not  justly  chargeable  to  the  United 
States,  unless  such  matters  are  financed  or  other- 
wise taken  care  of  by  the  Company  to  the  satis- 
faction of  the  Director  General,  and  the  Director 
General  may  apportion  any  such  amounts  to  two 
or  more  subsequent  installments :  Provided,  how- 
ever, That  said  power  to  deduct  amounts  due  or 
accruing  under  para,j?raph  (b)  of  section  5  hereof 
and  the  cost  of  additions  and  betterments  not 
justly  chargeable  to  the  United  States  shall  not  be 
so  exercised  as  to  prevent  the  Company  from  pay- 
ing out  the  sums  reasonably  required  to  support 
its  corporate  organization,  to  keep  up  sinking 
funds  for  the  Company's  debts  required  by  con- 
tracts in  force  December  31, 1917,  to  pay  its  taxes, 
to  pay  rents  and  other  amounts  (not  chargeable 
to  capital  account)  properly  payable  by  the  Com- 
pany for  leased  or  operated  roads  and  prop- 
erties, to  pay  interest  which  has  heretofore  been 
regularly  paid  by  the  Company,  and  interest  on 
loans  issued  during  federal  control  and  approved 
by  the  Director  General,  nor  shall  such  deduc- 
tion be  made  in  respect  of  additions  and  better- 
ments which  are  for  war  purposes  and  not  for 
the  normal  development  of  the  Company,  nor  in 
respect  of  road  extensions,  nor  in  respect  of 
amounts  due  under  paragraphs  (a)  and  (d)  of 
section  4  hereof,  in  cases  where  the  current  as- 


AMERICAN  RAILROADS  867 

sets,  including  materials  and  supplies,  of  the  Com- 
pany taken  over  by  the  Director  General  under 
the  provisions  of  this  agreement  clearly  exceed 
the  current  liabilities  of  the  Company  paid  or 
assumed  by  the  Director  General  under  said  sec- 
tion. In  the  event  of  a  difference  as  to  the  fact 
whether  additions  and  betterments  are  for  war 
purposes  and  not  for  the  normal  development  of 
the  Company,  or  as  to  whether  an  addition  is  a 
road  extension,  the  question  may,  on  application 
of  either  party,  be  referred  to  and  determined  by 
the  Commission. 

The  power  provided  in  this  paragraph  to  de- 
duct the  amount  due  by  the  Company  for  the  cost 
of  additions  and  betterments  not  justly  chargeable 
to  the  United  States  is  further  declared  to  be  an 
emergency  power,  to  be  used  by  the  Director 
General  only  when  he  finds  that  no  other  reason- 
able means  is  provided  by  the  Company  to  reim- 
burse the  United  States,  and,  as  contemplated  by 
the  President's  proclamation  and  by  the  federal 
control  act,  it  will  be  the  policy  of  the  Director 
General  to  so  use  such  power  of  deduction  as  not 
to  interrupt  unnecessarily  the  regular  payment  of 
dividends  as  made  by  the  Company  during  the 
test  period. 

Overdue  installments  of  compensation,  or  bal- 
ances thereof,  provided  for  in  this  section  shall 
bear  interest  from  maturity  at  the  rate  of  five  per 
cent  per  annum,  except  that  if  the  Director  Gen- 
eral shall,  prior  to  the  execution  of  this  contract, 
have  loaned  the  Company  any  money,  the  install- 
ments of  compensation  overdue  at  the  date  of  the 
execution  hereof  shall  bear  interest  from  maturity 


358  AMERICAN  RAILROADS 

at  the  same  rate  as  that  charged  to  the  Company 
on  such  loans. 

(c)  During  federal  control  the  Company  shall 
not,  without  the  prior  approval  of  the  Director 
General,  issue  any  bonds,  notes,  equipment  trust 
certificates,  stock,  or  other  securities,  or  enter  in- 
to any  contracts  (except  contracts  in  respect  of 
corporate  affairs  and  property  not  taken  under 
federal  control),  or  agree  to  pay  interest  on  its 
debt  at  a  higher  rate,  or  for  rent  of  leased  roads 
and  properties  a  larger  amount,  than  the  rates  and 
amounts  payable  as  of,  or  required  by  contracts 
in  force  on,  December  31,  1917.  The  Company 
may,  however,  procure  the  authentication  and  de- 
livery to  it  under  any  mortgage  or  trust  deed  or 
agreement  in  force  December  31, 1917,  of  bonds  or 
notes  issuable  thereunder  in  respect  of  additions, 
betterments,  extensions,  and  equipment,  or  for  re- 
funding purposes. 

(d)  Upon  the  cost  of  additions  and  better- 
ments, less  retirements  in  connection  theremth, 
and  upon  the  cost  of  road  extensions,  made  to  the 
property  of  the  Company  during  federal  control, 
the  Director  General  shall,  from  the  completion  of 
the  work,  pay  the  Company  a  reasonable  rate  of 
interest,  to  be  fixed  by  him  on  each  occasion.  In 
fixing  such  rate  or  rates  he  may  take  into  account 
not  merely  the  value  of  money  but  all  pertinent 
facts  and  circumstances,  whether  the  money  used 
was  derived  from  loans  or  otherwise,  provided 
that  to  the  extent  that  the  money  is  advanced  by 


AMERICAN  RAILROADS  35& 

the  Director  General  or  is  obtained  by  the  Com- 
pany from  loans  or  from  the  proceeds  of  securi- 
ties the  rate  or  rates  shall  be  the  same  as  that 
charged  by  the  Director  General  for  loans  to  the 
Company  or  to  other  companies  of  similar  credit. 

(e)  From  its  compensation  so  received  or  from 
other  income,  if  adequate  for  the  purpose,  the 
Company  shall  make  all  payments  of  interest, 
rent  (other  than  the  equipment  rents,  joint 
facility  rents,  and  rents  classified  as  operating 
expenses,  mentioned  in  paragraph  (j)  of  section 
4  hereof),  and  other  sums  necessary  to  prevent  a 
default  under  any  mortgage  or  lease  of  any  of  the 
property  described  in  paragraph  {a)  of  section  2 
hereof;  and  if  at  any  time  during  federal  control 
the  Company,  by  virtue  of  any  change  in  the 
right  of  possession  (subject  to  the  rights  of  the 
United  States)  to  any  of  said  property  or  other- 
wise, shall  no  longer  be  entitled  as  between  itself 
and  any  other  person  or  corporation  to  receive 
the  entire  compensation  herein  provided,  such 
compensation  shall  be  apportioned  and  paid,  as 
between  the  parties  entitled  thereto,  as  justice 
and  right  may  require. 

Section  8. — Claims  for  Losses  on  Additions,  Etc. 

Sec.  8.  (a)  Prompt  notice  in  writing,  except  as 
provided  in  paragraph  (d)  of  this  section,  shall 
be  given  the  Company  of  the  making  or  ordering 
of  any  additions,  betterments,  or  road  extensions, 
including  terminals,  motive  power,  cars,  or  other 
equipment  to  or  for  the  property  of  the  Company 


360  AMERICAN  RAILROADS 

costing  more  than  one  thousand  dollars,  with  an 
estimate  of  the  cost  thereof.  Such  notice  shall  be 
given  before  the  beginning  of  the  work  or  the 
acquisition  of  the  property  whenever  in  the  judg- 
ment of  the  Director  General  it  is  practicable  to 
do  so.  Within  a  reasonable  time  after  the  com- 
pletion of  the  work  or  the  acquisition  of  the  prop- 
erty, a  written  statement  of  the  final  cost  thereof 
shall  be  given  the  Company.  There  shall  be 
furnished  the  Company,  as  soon  as  practicable 
after  the  end  of  each  month,  a  written  statement 
of  all  expenditures  estimated  to  cost  one  thousand 
dollars  or  less  chargeable  to  investment  in  road 
and  equipment  made  during  the  month,  with  a 
brief  description  of  the  work  done  or  of  the  prop- 
erty acquired ;  and  such  statement  shall  constitute 
all  the  notice  of  additions  and  betterments  costing 
one  thousand  dollars  or  less  required  by  (t)  and 
(c)  of  this  section.  The  notices  provided  in  this 
paragraph  may  be  given  to  the  president  of  the 
Company  unless  the  Company  designates  some 
other  officer  to  receive  the  same,  in  which  event 
the  notice  shall  be  given  to  such  other  officer. 

(b)  Any  claim  of  the  Company  for  loss  accruing 
to  it  by  reason  of  expenditures  for  additions  and 
betterments  made  to  the  property  of  the  Company 
during  federal  control  in  connection  with  or  as  a 
part  of  the  work  of  maintaining,  repairing,  and 
renewing  the  Company's  property  and  chargeable 
under  the  accounting  rules  of  the  Commission  in 
force  December  31,  1917,  to  investment  in  road 
and  equipment,  except  such  expenditures  as  are 
incurred  in  connection  ^\'ith  the  replacement  of 


AMERICAN  RAILROADS  361 

buildings  and  structures  in  new  locations,  may  be 
determined  by  agreement  between  the  Director 
General  and  the  Company,  or,  failing  such  agree- 
ment, as  to  the  fact  or  amount  of  such  loss,  the 
questions  at  issue  may,  upon  the  application  of 
either  party  at  any  time  after  the  filing  of  the 
statement  of  claim  hereinafter  referred  to,  be 
ascertained  in  the  manner  provided  in  section  3 
of  the  federal  control  act:  Provided,  however, 
That  no  loss  shall  be  claimed  by  the  Company  and 
no  money  shall  be  due  to  it  in  respect  of  such  ad- 
ditions and  betterments  upon  the  ground  that  the 
actual  cost  thereof  at  the  time  of  construction  was 
greater  than  under  other  market  and  commercial 
conditions;  and  for  the  purpose  of  determining 
such  controversy  the  amount  paid  for  any  addition 
or  betterment  shall  be  deemed  the  fair  and  reason- 
able cost  thereof  and  shall  be  taken  as  the  basis 
for  such  determination ;  nor  unless  the  Company, 
within  sixty  days  of  notice  to  it  that  the  work  will 
be  done,  shall  give  the  Director  General  notice  of 
objection  thereto  and  shall  file  with  the  Director 
General  a  statement  of  its  claim  within  ninety 
days  after  notice  of  the  completion  of  the  work. 

(c)  Any  claim  of  the  Company  for  loss  accruing 
to  it  by  reason  of  any  additions  and  betterments 
which  are  not  made  in  connection  mth  or  as  a 
part  of  the  work  of  maintaining,  repairing,  and 
renewing  the  Company's  property,  or  accruing  to 
it  in  connection  with  maintenance  in  the  replace- 
ment of  buildings  and  structures  in  new  locations, 
or  by  reason  of  road  extensions,  terminals,  motive 
power,  cars,  or  other  equipment  made  to  or  pro- 


362  AMERICAN  RAILROADS 

vided  for  the  property  of  the  Company  during 
federal  control,  may  be  determined  by  agreement 
between  the  Director  General  and  the  Company, 
or  failing  such  agreement  as  to  the  fact  or  amount 
of  such  loss,  may,  by  proceedings  instituted  not 
later  than  six  months  after  the  end  of  federal  con- 
trol, be  ascertained  in  the  manner  provided  in 
section  3  of  the  federal  control  act:  Provided, 
hoivever,  That  no  loss  shall  be  claimed  by  the 
Company  and  no  money  shall  be  due  to  it  in  re- 
spect of  such  additions,  betterments,  road  exten- 
sions, terminals,  motive  power,  cars,  or  other 
equipment  mentioned  in  this  paragraph  upon  the 
ground  that  the  actual  cost  thereof  at  the  time  of 
construction  or  acquisition  was  greater  than  under 
other  market  and  commercial  conditions;  and  for 
the  purpose  of  determining  such  controversy  the 
amount  paid  for  any  additions,  betterments,  road 
extensions,  terminals,  motive  power,  cars,  or  other 
equipment  shall  be  deemed  the  fair  and  reason- 
able cost  thereof  and  shall  be  taken  as  the  basis 
for  such  determination;  nor  unless  within  sixty 
days  after  notice  to  the  Company  of  such  con- 
struction or  acquisition  written  notice  is  given  to 
the  Director  General  by  the  Company  that  it  will 
claim  a  loss  in  respect  thereof.  With  and  as  a 
part  of  such  notice  the  Company  shall  state  its 
objections  to  such  construction  or  acquisition  as 
far  as  reasonably  practicable  at  the  time.  Noth- 
ing in  this  agreement  shall  be  construed  as  bar- 
ring the  United  States  from  contending  that  no 
loss  within  the  meaning  of  the  federal  control  act 
accrued  to  the  Company  by  reason  of  any  addi- 
tions, betterments,  or  road  extensions  made  dur- 


AMERICAN  RAILROADS  363 

ing  federal  control  by  order  or  approval  of  the 
Director  General,  if  it  is  made  to  appear  that 
the  Company  itself  but  for  federal  control  should 
in  the  exercise  of  sound  judgment  have  made 
such  addition,  betterment  or  road  extension. 

(d)  Where  additions,  betterments,  or  road  ex- 
tensions or  terminals,  motive  power,  cars,  or  other 
equipment  have  been  made  to  or  provided  for  the 
property  of  the  Company  during  federal  control 
but  prior  to  the  execution  of  this  agreement,  the 
Director  General  shall  not  be  required  to  give  the 
notice  thereof  provided  for  in  paragraph  (a)  of 
this  section  and  notice  by  the  Company  of  any 
claim  of  loss  in  respect  thereto  may  be  given  the 
Director  General  within  ninety  days  after  the  ex- 
ecution hereof;  and  such  claims  shall  thereafter 
be  proceeded  with  in  the  manner  provided  in 
paragraph  {b)  or  paragraph  (c)  of  this  section, 
as  the  case  may  be. 

(e)  The  Director  General  shall  reimburse  the 
Company  for  the  amount  of  loss  ascertained  under 
this  section  with  a  proper  adjustment  of  interest 
thereon. 

(/)  The  Director  General  shall  not  acquire  any 
motive  power,  cars,  or  other  equipment  at  the 
expense,  or  on  the  credit,  of  the  Company  in 
excess  of  what  in  his  judgment  is  necessary,  in 
addition  to  its  then  existing  equipment,  to  pro- 
vide for  the  traffic  requirements  of  its  own  system 
of  transportation;  but  this  provision  shall  not 
prevent  the  Director  General,  after  the  acquisi- 


364.  AMERICAN  RAILROADS 

tion  of  such  equipment,  from  using  the  same,  or 
any  part  thereof,  on  the  line  of  any  other  trans- 
portation system  operated  by  him. 

Section  9. — Final  Accounting 

Sec.  9.  (a)  At  the  end  of  federal  control  all 
the  property  described  in  paragraph  (a)  of  sec- 
tion 2  hereof  shall  be  returned  to  the  Company, 
together  with  all  repairs,  renewals,  additions, 
betterments,  replacements,  and  road  extensions 
thereto  which  have  been  made  during  federal 
control,  except  as  any  part  thereof  may  have  been 
destroyed  or  retired  and  not  replaced,  in  which 
case  the  pro\isions  of  section  5  hereof  shall  gov- 
ern and  except  that  the  Director  General  shall 
not  be  obliged  to  restore  or  replace  property  de- 
stroyed or  damaged  by  the  acts  of  public  enemies. 

{b)  At  the  end  of  federal  control  the  Director 
General  shall  return  to  the  Company  all  uncol- 
lected accounts  received  by  him  from  the  Com- 
pany and  also  materials  and  supplies  equal  in 
quantity,  quality,  and  relative  usefulness  to  that 
of  the  materials  and  supplies  which  he  received 
and  to  the  extent  that  the  Director  General  does 
not  return  such  materials  and  supplies  he  shall 
account  for  the  same  at  prices  prevailing  at  the 
end  of  federal  control.  To  the  extent  that  the 
Company  receives  materials  and  supplies  in  ex- 
cess of  those  delivered  by  it  to  the  Director  Gen- 
eral it  shall  account  for  the  same  at  the  prices 
prevailing  at  the  end  of  federal  control,  and  the 
balance  shall  be  adjusted  in  cash. 


AMERICAN  RAILROADS  366 

(c)  The  total  amount  of  the  account  **Net  bal- 
ance receivable  from  agents  and  conductors"  at 
the  end  of  federal  control  may  be  turned  over  by 
the  Director  General  to  the  Company.  He  may 
also  turn  over  all  assets  which  have  accrued  out 
of  operation ;  and  the  Company  shall,  to  the  extent 
of  the  cash  received  or  realized  from  such  assets, 
pay  and  charge  to  the  Director  General  all  ex- 
penses arising  out  of  railway  operations  during 
federal  control,  including  reparation  and  other 
claims,  and  may,  unless  objection  is  made  by  the 
Director  General,  pay  and  charge  to  him  any  such 
expenses  including  reparation  and  other  claims 
in  excess  of  the  cash  so  received  or  realized.  On 
the  first  day  of  the  third  month  following  the 
termination  of  federal  control  an  accounting  be- 
tween the  parties  shall  be  had,  and  so  on  the  first 
of  each  third  month  thereafter.  Any  balance 
found  due  either  party  shall  be  payable  as  of  the 
date  on  which  the  account  is  stated  and  shall  bear 
interest  until  paid. 

(d)  At  the  end  of  federal  control  there  shall  be 
paid  to  the  Company  any  balance  then  remaining 
unpaid  of  the  cash  received  from  the  Company  at 
the  beginning  of  or  during  federal  control,  to- 
gether with  any  unpaid  interest  which  may  have 
accrued  upon  the  same.  There  shall  also  be  paid 
to  the  Company  any  funds  created  under  the  pro- 
visions of  this  agreement,  except  to  the  extent 
that  such  funds  may  have  been  properly  used 
under  this  agreement. 


366  AMERICAN  RAILROADS 

(e)  Wherever  under  any  provision  of  this  sec- 
tion there  is  to  be  an  adjustment  of  interest,  it 
shall  be  at  the  rate  of  five  per  cent  per  annum 
unless  the  parties  shall  in  any  case  agree  on  a 
different  rate. 

(/)  After  federal  control  no  claim  by  or  against 
the  Director  General  shall  be  settled  by  the  Com- 
pany against  the  written  objection  of  the  Director 
General  or  the  Attorney  General  of  the  United 
States.  The  conduct  of  all  litigation  before  any 
court  or  commission  arising  out  of  such  disputed 
claims  or  out  of  operations  during  federal  con- 
trol shall  be  in  charge  of  the  Company's  legal 
force  and  the  expense  thereof  shall  be  paid  by 
the  Company;  but  the  Director  General  or  the 
Attorney  General  may,  at  the  expense  of  the 
United  States,  employ  special  counsel  in  connec- 
tion with  any  such  litigation. 


Execution 


Eeprinted    by    permission    from    The    Annals    of    the    American 

Academy  of  Political  and   Social  Science,  Philadelphia, 

November,   1919.     Publication   No.   1342. 

The  Accomplishments  of  the  United  States 

Railroad  Administration  in  Unifying 

AND  Standardizing  the  Statistics 

of  Operation 

By  William  J.   Cunningham 

Assistant  Director  of  Operation,   United   States   Railroad 
Administration* 

THE  standardization  of  statistics  of  opera- 
tion, brought  about  by  the  centralized 
control  of  the  United  States  Eailroad 
Administration,  was  intended  primarily  to  aid 
the  Director  General  and  his  staff,  the 
Regional  Directors,  and  the  Federal  Managers  of 
the  individual  railroads,  in  keeping  closer  check 
on  the  efficiency  of  operation,  as  measured  by 
units  of  transportation,  equipment  utilization  and 
operating  costs.  Railroad  officers,  as  a  whole, 
now  know  more  than  they  knew  before  about  the 
details  of  the  operation  of  their  own  properties, 
and  they  now  know  very  much  more  than  they 
knew  before  about  their  relative  performance  in 
comparison  with  neighboring  roads.  The  publi- 
cation of  the  monthly  summaries  by  roads  and  by 
regions  makes  possible  easy  comparison  of  the 

*  Professor  of  Transportation,  Harvard  University,  on  leave  of 
absence. 

367 


868  AMERICAN  RAILROADS 

results  on  one  road  with  those  of  other  roads 
operating  under  similar  conditions,  and  enables 
each  Regional  Director  to  measure  the  efl&ciency 
of  his  region  with  that  of  neighboring  regions 
without  uncertainty  or  qualification  as  to  bases 
and  methods. 

The  value  of  the  information  made  available 
by  the  new  plan  is  not  confined  to  railroad  man- 
agers. The  published  summaries  have  opened  up 
to  the  public  regulating  authorities,  economists, 
investors  and  other  students  of  transportation,  a 
wealth  of  data  which  heretofore  have  not  been 
available  in  comprehensive  form  or  on  uniform 
bases.  This  phase  of  the  subject  is  of  interest  to 
the  readers  of  The  Annals,  and  it  will  be  largely 
from  this  viewpoint  that  the  following  descrip- 
tion of  the  plan,  and  the  discussion  of  its  under- 
lying principles,  will  be  undertaken. 

Statistical  Requirements  of  the  Interstate  Commerce 
Commission 

At  this  point  it  is  important  to  draw  attention 
to  the  fact  that  the  Interstate  Commerce  Com- 
mission in  its  classifications  of  revenues  and  ex- 
penses has  made  very  little  provision  for  statistics 
of  operation.  The  emphasis  throughout  all  of  the 
classifications,  and  in  the  data  required  in  the 
annual  report,  has  been  placed  upon  the  features 
of  finance  and  public  service.  By  combinations  of 
the  statistics  of  transportation  production,  (ton- 
miles  and  passenger-miles)  with  statistics  of 
train-,  locomotive-,  and  car-mileage,  it  is  possible 
to   derive   a   few  statistical   units,   such   as   the 


AMERICAN  RAILROADS  869 

average  net  freight  train-load,  the  passengers  per 
train-mile,  the  tons  per  loaded  freight  car-mile, 
and  the  passengers  per  passenger  car-mile.  It  is 
possible  also  to  derive  a  few  unit  costs  for  the 
transportation  service  as  a  whole,  but,  generally 
speaking,  the  annual  report  form  of  the  Com- 
mission does  not  provide  sufficient  data  for  the 
purposes  of  the  analyst  of  operating  efficiency. 

This  comment  is  not  intended  as  a  criticism. 
The  standardization  of  railroad  accounting  is  one 
of  the  noteworthy  achievements  of  the  Interstate 
Commerce  Commission.  It  meets  the  require- 
ments of  the  original  Act  to  Regulate  Commerce, 
and  of  its  amendments.  Section  20  of  that  Act, 
as  amended,  instructs  the  Commission  to  provide 
for  '*a  uniform  system  of  accounts  and  the  man- 
ner in  which  such  accounts  shall  be  kept"  and 
especially  refers  to 

capital  stock  issued,  the  amounts  paid  therefor,  and  the 
manner  of  payment  for  the  same ;  the  dividends  paid,  the 
surplus  fund,  if  any,  and  the  number  of  stockholders; 
the  funded  and  floating  debts  and  the  interest  paid 
thereon ;  the  cost  and  value  of  the  carrier 's  property, 
franchises,  and  equipments;  the  number  of  employees 
and  the  salaries  paid  each  class ;  the  accidents  to  passen- 
gers, employees,  and  other  persons,  and  the  causes 
thereof ;  the  amounts  expended  for  improvements  each 
year,  how  expended,  and  the  character  of  such  improve- 
ments; the  earnings  and  receipts  from  each  branch  of 
business ;  the  balances  of  profit  and  loss ;  and  a  complete 
exhibit  of  the  financial  operations  of  the  carrier  each 
year,  including  an  annual  balance  sheet.  Such  reports 
shall  also  contain  such  information  in  relation  to  rates 
or  regulations  concerning  fares  or  freights,  or  agree- 
ments, arrangements,  or  contracts  affecting  the  same  as 
the  Commission  may  require     .     .     . 


370  AMERICAN  RAILROADS 

The  absence  of  any  reference  to  statistics  which 
reflect  the  degree  of  operating  efficiency  is  appar- 
ent. The  viewpoint  is  that  of  protection  of  those 
who  pay  the  freight,  those  who  travel,  and  those 
who  invest  their  money  in  railroad  securities. 
The  uniform  system  of  accounts,  therefore,  does 
not  include  within  its  scope  any  standards  of  cost 
accounting  nor  any  indices  (in  detail)  of  man- 
agerial efficiency,  except  those  which  are  reflected 
by  the  totals  of  the  income  account,  the  balance 
sheet,  and  the  profit  and  loss  account. 

In  the  absence  of  required  standards,  the  rail- 
roads continued  and  developed  their  own  statisti- 
cal systems  indi\'idually,  and  there  grew  to  be 
wide  divergencies  in  practise,  ranging  from  an 
almost  entire  absence  of  statistics  other  than 
those  required  by  the  Commission,  to  elaborate 
cost  accounting  and  efficiency  data.  There  was  no 
uniformity,  either  as  to  the  general  scope  of 
operating  statistics  or  as  to  the  methods  or  bases. 
Each  railroad  evolved  its  own  statistical  stand- 
ards according  to  its  own.  conception  of  what  was 
necessary  or  desirable,  and  in  each  case  the  sys- 
tem, to  a  large  extent,  was  a  reflex  of  the  interest 
taken  personally  in  the  figures  by  those  in  man- 
agerial authority.  It  was,  therefore,  extremely 
difficult  for  one  road  to  compare  its  operating 
statistics  with  those  of  its  neighbors,  as  there 
was  seldom  any  assurance  that  the  units  bearing 
the  same  title  really  meant  the  same  thing.  For 
example,  in  the  important  feature  of  freight  car 
utilization.  Road  A  would  compute  its  ''Average 
miles  per  car  day"  by  including  every  freight  car 
on  its  lines;  Road  B  would  exclude  cars  stored; 


AMERICAN  RAILROADS  371 

Road  C  would  exclude  cars  held  under  repairs  or 
awaiting  repairs  as  well  as  those  stored.  Some 
roads  took  count  of  the  cars  on  the  line  once  every 
month  and  used  that  as  the  divisor.  Others  took 
the  average  of  two  or  four  counts  per  month. 
Others  took  the  daily  average.  In  practically 
every  unit  of  performance  there  were  variations 
in  practise  which  prevented  comparisons  without 
qualifications  of  some  kind. 

Under  pre-war  conditions,  w^hen  each  road  or 
system  was  operated  as  an  independent  unit,  this 
lack  of  standardization  was  not  highly  important. 
When,  however,  the  roads  were  taken  over  by  the 
Grovernment,  and  operation  was  begun  as  a  single 
system  under  centralized  management,  this  lack 
of  statistical  standardization  was  extremely  em- 
barrassing. For  the  purposes  of  intelligent  con- 
trol, centrally  and  by  regions,  a  standardized  plan 
was  vital. 

Standardization  by  United  States  Railroad 
Administration 

The  Operating  Statistics  Section  of  the  United 
States  Railroad  Administration  was  created  on 
May  6,  1918,  as  a  part  of  the  Division  of  Opera- 
tion, and  instructed  to  "arrange  for,  and  super- 
vise, the  making  of  standardized  reports  and 
statistics  pertaining  to  the  maintenance  and  op- 
eration of  railroads  under  federal  control,  and  to 
make  such  compilations  of  statistics  as  may  be 
required. 

The  first  work  of  the  section  was  to  design  the 
standard  forms.    The  aim  was  to  continue  the  best 


372  AMERICAN  RAILROADS 

in  current  practise,  and  at  the  same  time  to  avoid 
placing  too  great  a  burden  on  the  roads  which 
had  not  been  progressive  in  that  respect.  An 
effort  was  made  to  utilize  all  of  the  basic  data 
required  by  the  annual  report  forms  of  the  Inter- 
state Commerce  Commission,  and  to  superimpose 
upon  that  structure  the  additional  information 
considered  essential  to  a  scientific  exhibit  of  the 
more  important  phases  of  physical  performance. 
The  plan,  as  promulgated  in  August,  1918,  did  not 
completely  embrace  its  intended  scope,  (as  it  was 
the  intention  to  go  into  the  details  of  maintenance 
of  way  and  equipment,  and  into  certain  further 
details  of  transportation  expenses)  but  the  initial 
requirements  are  scientifically  comprehensive 
mthout  being  carried  so  far  toward  the  ideal  as 
to  be  impracticable  or  unjustifiably  burdensome. 

List  of  Regular  Monthly  Reports 

Form  1,  Freight  Train  Performance.  This 
form  calls  for  train-miles,  locomotive-miles,  car- 
miles,  gross  ton-miles,  rating  ton-miles,  net  ton- 
miles,  train-hours,  and  the  following  averages  and 
ratios  (separately  by  directions) : 

Ratio  of  locomotive-miles  to  train-miles 

Car-miles  per  train-mile  (loaded,  empty  and  total) 

Gross  ton-miles  per  train-mile 

Rating  (potential)  ton-miles  per  train-mile 

Net  ton-miles  per  train-mile 

Average  speed  in  train-miles  per  train-hour 

Gross  ton-miles  per  train-hour 

Net  ton-miles  per  train-hour 

Net  ton-miles  per  loaded  car-mile 


AMERICAN  RAILROADS  373 

Per  cent  loaded  car-miles  to  total  car-miles 
Per  cent  net  ton-miles  to  gross  ton-miles 
Per  cent  actual  gross  ton-miles  to  potential  gross 
ton-miles 

Form  2,  Passenger,  Mixed  and  Special  Train 
Performance.  This  form  calls  for  less  detail  than 
the  report  on  freight  train  performance,  as  the 
passenger  service  does  not  lend  itself  so  readily 
to  statistical  control.  Freight  trains,  with  certain 
exceptions,  are  not  run  unless  there  are  sufficient 
cars  awaiting  movement  to  make  up  full  train- 
loads.  The  passenger  service,  on  the  other  hand, 
is  practically  fixed  by  the  public  time-table,  and 
the  trains  are  run  regardless  of  the  fluctuations 
in  the  number  of  passengers.  The  superintendent 
has  little  control  over  the  minimum  passenger 
train  service,  although  he  can  regulate  the  use  of 
extra  cars  or  extra  trains.  Form  2  provides  for 
train-mileage,  locomotive-mileage,  and  car-mile- 
age, separated  by  classes  of  cars.  The  statistics 
are  reported  separately  for  passenger  trains, 
mixed  trains  and  special  trains.  The  averages 
and  ratios  for  passenger  trains  are : 

Ratio  of  locomotive-miles  to  train-miles 
Car-miles  per  train-mile 

Passenger  cars 

Sleeping,  parlor,  and  observation  cars 

Dining  cars 

Other  passenger  train  cars 

Total 


374  AMERICAN  RAILROADS 

Form  3,  Locomotive  Performance.  This  report 
calls  for  statistics  of  performance  and  of  fuel 
consumption  of  freight,  passenger  and  yard 
switching  locomotives.  From  the  basic  informa- 
tion are  derived  the  following  averages  or  ratios : 

Freight  Service 

Gross  ton-miles  per  locomotive-mile 
Net  ton-miles  per  locomotive-mile 
Locomotive-miles   per   locomotive-day,  serviceable   lo- 
comotives 

Locomotive-miles  per  locomotive-day,  all  locomotives 
Net  ton-miles  per  locomotive-day,  all  locomotives 
Per  cent  of  unserviceable  locomotives 
Pounds  of  coal  per  locomotive-mile 
Pounds  of  coal  per  1000  gross  ton-miles 

Passenger  Service 
Car-miles  per  locomotive-mile 

Locomotive-miles  per  locomotive-day,  serviceable  lo- 
comotives 

Locomotive-miles  per  locomotive-day,  all  locomotives 
Per  cent  of  unserviceable  locomotives 
Pounds  of  coal  per  locomotive-mile 
Pounds  of  coal  per  car-mile 

Yard  Switching  Service 

Locomotive-miles  per  locomotive-day,  serviceable  lo- 
comotives 

Locomotive-miles  per  locomotive-day,  all  locomotives 
Per  cent  of  unserviceable  locomotives 
Pounds  of  coal  per  locomotive-mile 

Form  4,  Distribution  of  Locomotive  Hours. 
This  is  an  entirely  new  report  which  calls  for  the 


AMERICAN  RAILROADS  376 

total  number  of  locomotive-hours  and  their  distri- 
bution by  classes,  (freight,  passenger,  yard 
switching  and  others)  and  a  complete  record  of 
the  hours  spent  on  the  road  between  terminals,  the 
hours  spent  at  terminals  before  beginning  and 
after  completing  the  road  run,  the  hours  spent  in 
the  enginehouse,  and  the  hours  spent  in  the  shop 
or  awaiting  repairs.  The  aim  is  first  to  separate 
the  serviceable  from  the  unserviceable  locomo- 
tives, and  then,  for  each  class  of  service,  to  show 
the  division  of  serviceable  locomotive  time  be- 
tween hours  devoted  to  the  production  of  train- 
miles  and  hours  of  unproductive  time. 

Form  5,  Freight  Traffic  Movement  and  Car 
Performance.  This  form  provides  an  exhibit  of 
the  total  volume  of  freight  traffic  and  of  freight 
car  efficiency,  and  shows  the  average  number  of 
cars  on  the  road  daily  (separated  between  ser- 
viceable and  unserviceable),  the  net  ton-miles,  the 
train-miles,  and  the  car-miles.  It  includes  the 
statistics  of  mixed  trains  as  well  as  those  of 
freight  trains.  (Form  1  is  confined  exclusively  to 
freight  trains.)    The  averages  follow: 

Net  ton-miles  per  mile  of  road  per  day 

Net  ton-miles  per  train-mile 

Per  cent  of  cars  on  line  to  cars  owned 

Per  cent  of  cars  in  or  awaiting  shop  to  total  on  line 

Net  tons  per  loaded  car-mile 

Per  cent  of  loaded  car-miles  to  total  car-miles 

Car-miles  per  car-day 

Net  ton-miles  per  car-day 

Forms  1  to  5,  inclusive,  relate  entirely  to  what 
is  termed  physical  performance.  The  dollar  mark 
does  not  appear  on  any  of  the  five  forms.    Con- 


876  AMERICAN   RAILROADS 

sequently  they  are  independent  of  the  expenditure 
accounts.  The  distinction  is  important  from  the 
viewpoint  of  early  availability.  The  accounts 
relating  to  expenditures  ordinarily  are  not  closed 
until  the  20th  to  the  24th  of  the  month  following 
that  to  which  the  figures  apply,  and  the  complete 
income  account  ordinarily  is  not  available  until 
the  25th.  The  physical  performance  statistics, 
however,  are  based  in  greater  part  on  the  con- 
ductors' train  reports.  Those  which  do  not  come 
from  the  train  reports  are  taken  from  other 
records  of  the  operating  department  which  are 
available  a  few  days  after  the  close  of  the  month. 
Consequently  it  is  possible  to  complete  the  re- 
ports of  physical  performance  fifteen  days  after 
the  close  of  the  month,  and  the  statistics  are 
available  at  least  ten  days  before  those  which 
relate  to  cost.  It  is  highly  important  that  the 
figure  shall  be  in  the  hands  of  the  supervising 
oflBcers  at  the  earliest  possible  date. 

The  underlying  theory  of  the  five  forms  is  that 
the  operating  department  is  charged  with  a  given 
number  of  locomotive-days  and  car-days,  and  is 
credited  with  its  production  in  ton-miles  or  pas- 
senger car-miles.  The  production  in  ton-miles 
and  passenger  car-miles,  in  turn,  is  related  to  the 
operating  department's  expenditure  in  train- 
miles,  locomotive-miles,  and  car-miles,  and  the 
supplementary  statistics  throw  light  on  the  com- 
ponents of  the  train-load  and  the  car-load,  as  well 
as  upon  the  effect  of  changes  in  the  nature  of  the 
commodities  handled,  in  the  balance  of  traflBc,  in 
the  proportion  of  fast  and  way-freights,  and  in 
other  physical,  trafiic  and  operating  features.  The 


AMERICAN  RAILROADS  377 

desiderata  are  that  each  locomotive  and  car  should 
be  employed  to  its  capacity,  and  should  produce 
the  maximum  of  ton-miles  with  the  minimum  of 
train-,  locomotive-  and  car-miles.  The  statistics 
show  clearly  the  relation  between  the  ton-mile 
production  and  the  utilization  of  equipment,  and 
the  relation  between  the  actual  and  potential  train 
production.  The  physical  performance  statistics 
are  compared  at  a  later  date  with  the  cost  statis- 
tics provided  by  Forms  6  and  7.  These  two  forms 
are  due  to  be  completed  on  the  30th  day  of  the 
month  following  that  to  which  the  figures  apply. 

Form  6,  Locomotive  and  Train  Costs.  This  re- 
port deals  with  the  direct  or  *' out-of-pocket"  costs 
— those  which  are  directly  related  to  train-,  loco- 
motive- and  car-performance.  They  require  a 
separation  of  these  primary  expense  accounts 
according  to  the  Interstate  Commerce  Commis- 
sion's '^Eules  Governing  the  Separation  of  Op- 
erating Expenses  between  Freight  Service  and 
Passenger  Service." 

The  basic  data  are  reported  separately  for 
freight  service  and  passenger  service  and  sep- 
arately for  : 

Locomotive  repairs 

Enginehouse  expenses 

Enginemen 

Trainmen 

Locomotive  fuel 

Other  locomotive  supplies 

Train  supplies  and  expenses 


878  AMERICAN   RAILROADS 

For  the  freight  service  the  unit  costs  are  ex- 
pressed in: 

Cost  per  locomotive-mile 

Cost  per  train-mile 

Cost  per  1000  gross  ton-miles 

For  the  passenger  service,  they  are  shown  as : 

Cost  per  locomotive-mile 

Cost  per  train-mile 

Cost  per  passenger  train  car-mile 

Form  7,  Condensed  Income  Account  and  Op- 
erating Expenses  hy  Primary  Accounts.  This 
form  is  a  copy  of  the  condensed  income  account 
and  the  primary  expense  accounts  of  the  Inter- 
state Commerce  Commission,  with  certain  re- 
arrangement and  grouping  to  provide  sub-totals 
of  the  primary  expense  accounts  which  adapt 
themselves  to  operating  statistical  requirements. 
A  summary  is  provided  to  show  the  operating 
ratio  divided  between  the  seven  general  accounts 
of  the  Interstate  Commerce  Commission  classifi- 
cation. 

Form  8,  Freight  and  Passenger  Revenue  Statis- 
tics. This  report  (which  is  due  on  the  10th  day  of 
the  second  month  following  that  to  which  the 
figures  apply)  requires  in  monthly  form  most  of 
the  revenue  statistics  called  for  annually  by  the 
Interstate  Commerce  Commission.  From  the 
basic  information  the  following  units  are  derived 
and  are  used  as  supplementary  data  in  the  analy- 
sis of  operating  results : 


AMERICAN  RAILROADS  879 

Miles  per  ton,  revenue  freight  (average  haul) 

Revenue  per  ton,  revenue  freight 

Revenue  per  ton-mile,  revenue  freight 

Revenue  per  freight  train-mile 

Revenue  per  loaded  freight  car-mile 

Miles  per  passenger  (average  journey) 

Passengers  per  train-mile 

Passengers  per  passenger-carrying  car-mile 

Passenger  revenue  per  passenger 

Passenger  revenue  per  passenger-mile 

Total  revenue  per  passenger  train-mile 

Passenger  revenue  per  passenger-carrying  car-mile 

Some  Distinctive  Features  of  the  New  Plan 

The  foregoing  will  give  a  general  idea  of  the 
scope  of  the  plan.  Attention  will  now  be  directed 
to  some  of  its  distinctive  features.  The  principal 
innovations  appear  in  the  statistics  of  freight 
train  operation,  as  that  field  contains  the  largest 
possibilities  of  statistical  control  and  had  the 
greatest  need  of  harmonizing  divergencies  in  sta- 
tistical practise. 

Gross  Ton-Miles 

At  the  outset  it  was  decided  that  gross  ton-miles 
are  absolutely  essential.  They  represent  the  prod- 
uct of  the  gross  weight  (tons  of  2000  lbs.)  of  the 
train  behind  the  tender,  and  the  miles  moved. 
Gross  ton-miles  are  the  superintendent's  trans- 
portation product,  against  which  his  costs  may  be 
measured.  All  of  the  gross  load  is  not  paying 
freight.    The  paying  freight  is  represented  by  the 


b 


380  AMERICAN  RAILROADS 

net  ton-miles.    Any  complete  statistical  plan  re- 
quires both  sets  of  figures. 

The  compilation  of  gross  ton-miles  had  been 
common  west  of  the  Mississippi  River  for  many- 
years,  and  to  a  smaller  extent  this  was  true  also 
of  certain  important  roads  in  the  South.  Such 
statistics,  however,  were  not  common  in  the  East, 
although  the  tendency  was  toward  recognizing 
their  value. 

Eating  Ton-Miles 

The  compilation  of  rating  ton-miles  was  con- 
fined to  a  very  few  railroads.  Rating  ton-miles 
are  the  potential  ton-miles  which  would  have  been 
produced  had  all  trains  been  loaded  to  100 
per  cent  of  the  slow  freight  rating  for  normal 
summer  weather,  taking  account  of  changes  in  the 
locomotive  ratings  over  sections  of  the  train-run. 
It  is  customary  to  determine,  and  to  publish  as 
the  tonnage  rating  of  each  class  of  each  locomo- 
tive, what  each  class  of  locomotive  is  capable  of 
hauling  over  each  run  or  each  section  of  a  run 
when  there  are  ditferences  in  the  gradients  to  be 
overcome.  It  was  decided  that  this  information  is 
vital  to  a  scientific  analysis  of  train  loading  effi- 
ciency, as  the  ratio  of  the  actual  gross  ton-miles 
to  the  potential  gross  ton-miles  gives  the  per- 
centage of  train  loading  efficiency.  The  general 
manager  of  a  railroad  may  fairly  hold  his  super- 
intendents responsible  for  a  satisfactory  ratio 
of  actual  to  potential,  the  performance  in  every 
case  to  be  interpreted  in  the  light  of  other  related 
statistics,  such  as  the  train  speed  and  the  ratio 


AMERICAN  RAILROADS  381 

of  net  ton-miles  to  gross  ton-miles.  In  the  very- 
nature  of  things  the  superintendent  can  seldom 
make  a  perfect  performance  of  100%.  His  traffic 
will  not  be  evenly  balanced  by  directions,  he  must 
run  some  fast-freights  and  way-freights  with  less 
than  the  full  tonnage  required  by  the  slow  freight 
tonnage  rating,  and  the  weather  conditions  are 
not  always  ideal. 

Net  Ton-Miles  from  the  Train  Reports 

The  net  ton-miles  are  the  product  of  the  tons 
of  freight  in  the  train  and  the  miles  they  are 
moved.  The  net  ton-miles  represent  the  paying 
part  of  the  gross  load.  From  the  viewpoint  of 
management  the  net  load  is  more  important  than 
the  gross  load,  as  the  revenues  follow  the  net  tons 
although  the  expenses  follow  the  gross  tons.  It  is 
important,  then,  to  know  the  ratio  of  net  ton- 
miles  to  gross  ton-miles.  That  ratio  is  influenced 
by  the  car-load,  which,  in  turn,  is  influenced  by 
the  fluctuations  in  the  relative  proportions  of  low- 
grade  freight  and  high-grade  freight.  The  former 
moves  in  bulk  in  full  car-loads;  the  latter  moves 
in  relatively  light  car-loads.  The  ratio  of  net  ton- 
miles  to  gross  ton-miles  is  influenced  also  by  the 
fluctuations  in  the  empty  car  movement. 

The  net  ton-miles  reported  on  Forms  1  and  5 
are  computed  from  the  conductors'  train  reports 
which  among  other  things  show  the  car  numbers 
and  initials,  the  weight  of  contents,  the  gross 
weight,  and  the  points  between  which  moved. 
Except  in  a  very  few  isolated  cases  (where  the 
value  of  the  statistics  had  been  recognized)  net 


382  AiMERlCAN  llAILROADS 

ton-miles  were  not  available  until  the  latter  part 
of  the  second  month,  that  is  to  say,  the  net  ton- 
miles  for  January  would  not  be  complete  until 
March  15  to  March  25.  The  ini'orniation  was 
taken  from  the  waybills,  the  source  of  freight 
revenue  statistics,  and  the  delay  in  the  settlement 
of  interline  waybills  prevented  an  earlier  closing 
of  the  revenue  accounts.  As  a  consequence  the 
net  ton-miles  were  received  so  late  that  they  did 
not  provide  a  satisfactory  basis  for  the  computa- 
tion of  train  loading  and  car  loading  statistics. 

Another  objection  applied  to  waybill  ton-miles 
as  a  measure  of  train-  and  car-performance.  Ton- 
miles  computed  from  the  waybills  rarely  corre- 
sponded with  the  tons  actually  moved  during  the 
period  for  which  the  train-miles  were  reported, 
because  of  the  delay  in  taking  the  interline  way- 
bills into  account.  There  was  always  a  ** lap-over" 
of  interline  waybill  ton-miles  omitted  from  the 
preceding  period,  and  a  shortage  of  interline 
waybill  ton-miles  produced  in  the  current  period 
but  not  taken  into  account  until  the  next  period. 
In  theory  the  "lap-over"  should  have  balanced 
the  shortage,  but  in  actual  practise  the  discrep- 
ancy was  often  so  great  as  to  invalidate  waybill 
tonnage  as  a  measure  of  train  performance  for 
any  particular  month. 

It  was  decided,  therefore,  to  require  that  the 
net  ton-miles,  like  the  gross  ton-miles,  the  train- 
miles,  the  locomotive-miles,  the  car-miles  and  the 
train-hours,  should  be  computed  from  the  train 
reports.  All  of  the  basic  data,  then,  would  come 
from  the  same  source.  This  insures  the  com- 
parability of  all  these  related  data,  and  definitely 


AMERICAN  RAILROADS  383 

allocates  the  transportation  product  to  the  par- 
ticular period  under  review.  Steps  were  taken 
later  to  utilize  the  train  report  ton-miles  for  rev- 
enue accounting  and  statistical  purposes,  and  to 
discontinue  the  computation  of  waybill  ton-miles 
except  in  certain  states  which  require  a  separation 
of  ton-miles  between  interstate  and  intrastate. 

It  may  occur  to  the  minds  of  those  who  are 
interested  in  ton-mile  statistics  purely  from  the 
viewpoint  of  revenue  and  public  service  that  the 
substitution  of  the  statistics  from  the  train  re- 
ports may  be  less  accurate  than  those  from  the 
waybills,  and  that  the  use  of  train  report  ton-miles 
as  a  divisor  into  freight  revenue  may  affect  the 
integrity  of  the  important  unit ' '  Revenue  per  ton- 
mile."  There  is,  however,  no  cause  for  appre- 
hension on  that  score,  as  experience  has  shown 
that  differences  in  the  two  sets  of  statistics  are  so 
small  as  to  be  negligible.  A  comparison  of  the 
net  ton-miles  from  the  waybills  (before  that  basis 
was  discontinued)  with  those  taken  from  the  train 
reports,  shows  that  for  all  railroads  for  five 
months  the  variation  was  but  0.8%.  In  this  test 
the  effect  of  the  * 'lap-over "  items  is  nullified  be- 
cause they  are  spread  over  a  period  of  five 
months.  The  variation  would  be  greater  in  the 
comparison  of  a  single  month. 

The  Time  Element  in  Operating  Statistics 

The  importance  of  the  time  element  in  operat- 
ing statistics  had  not  generally  been  recognized. 
The  majority  of  railroad  men  and  financiers,  are 
accustomed  to  think  in  terms  of  train-load,  i.e.. 


a«4  AMERICAN   RAILROADS 

ton-miles  per  train-mile.  Relatively  few  have  been 
accustomed  to  think  in  terms  of  ton-miles  per 
train-hour.  The  latter,  however,  is  the  better 
index  to  efficiency.  The  train-load,  by  itself,  takes 
no  account  of  speed.  Ton-miles  per  train-hour 
are  the  resultant  of  load  and  speed.  It  is  anal- 
ogous to  the  horsepower  unit.  It  combines  in  itself 
the  net  effect  of  the  operating  policy  between  the 
two  extremes  of  loading  the  locomotive  to  every 
ton  it  can  drag  at  low  speed  over  the  ruling  grade, 
and  of  sacrificing  tonnage  in  order  to  make  the 
trip  quicldy.  There  is  ahvays  a  critical  point 
between  the  two  extremes  wiiich  under  normal 
conditions  wdll  produce  the  maximum  of  ton-miles 
per  train-hour  at  the  minimum  cost  per  ton-mile. 
To  illustrate :  assume  that  on  a  given  run  there 
are  sections  of  1%  grade  over  which  a  given  type 
of  locomotive  can  haul  1,500  gross  tons  (tons  of 
car  and  lading  combined)  at  a  speed  of  6  miles 
per  hour  on  these  maximum  grades.  The  speed 
on  other  sections,  of  course,  will  be  greater,  but 
■we  will  assume  that,  with  a  normal  allowance 
for  road  delays,  the  run  of  100  miles  may  be  made 
in  10  hours.  At  that  speed  the  production  would 
be  15,000  gross  ton-miles  per  train-hour  (train- 
load  of  1,500  gross  tons  times  train-speed  of  10 
miles  per  hour).  As  the  train-  and  engine-crews 
are  on  an  8-hour  day  basis,  they  would  be  paid 
overtime  for  2  hours.  (It  is  unnecessary  here  to 
go  into  the  technicalities  of  the  wage  schedules 
which  provide  that  mileage  rates  apply  unless 
the  miles  per  hour  in  freight  service  are  less  than 
12.5,  in  which  case  hourly  rates,  based  on  12.5 
miles  per  hour,  apply.)     In  this  case  it  may  be 


AMERICAN   RAILROADS  385 

found  that  a  reduction  in  the  tonnage  rating  to 
1,350  tons  would  permit  an  increase  in  the  speed 
and  reduce  the  trip  hours  to  8,  or  an  average 
speed  of  12.5  miles  per  hour.  This  combination 
of  train-load  and  train-speed  will  produce  16,875 
gross  ton-miles  per  train-hour.  The  ton-mile  pro- 
duction per  train-hour  is  thereby  increased  from 
15,000  to  16,875,  and  the  cost  per  ton-mile  is  de- 
creased because  of  the  elimination  of  overtime. 
In  this  assumed  case  it  is  plain  that  the  1,500  ton 
rating  is  uneconomical.  In  the  great  majority  of 
cases  it  may  not  be  clear  whether  there  would  be 
any  real  economy  in  decreasing  the  load  to  in- 
crease the  speed.  These  principles  are  ordinarily 
considered  when  the  tonnage  ratings  are  estab- 
lished, and  it  is  the  intention  that  they  shall  be 
set  at  a  maximum  which  will  not  prevent  the 
trains  from  moving  at  economical  speed. 

In  order  to  provide  for  the  time  element  in  op- 
erating statistics,  the  compilation  of  freight  train- 
hours  was  required.  Form  1  shows  these  basic 
data  as  well  as  gross  ton-miles  and  net  ton-miles 
per  train-hour.  It  is  possible,  therefore,  to  trace 
the  relationship  between  increases  or  decreases 
in  the  train-load  and  increases  or  decreases  in  the 
train-speed,  and  to  note  the  combined  effect  in 
ton-miles  per  train-hour.  The  fluctuations  in  ton- 
miles  per  train-hour  may,  in  turn,  be  compared 
with  fluctuations  in  the  cost  per  gross  ton-mile, 
reported  on  Form  6. 

The  time  element  has  recognition  also  in  Form 
5,  which  shows  as  the  final  and  inclusive  unit  of 
freight  car  efficiency,  ''Net  ton-miles  per  car- 
day.  ' '    This  unit  is  the  resultant  of  three  factors : 


386  AMERICAN  RAILROADS 

1.  Average  ton-miles  per  loaded  car-mile 

2.  Per  cent  of  loaded  car-miles  to  total  car-miles 

3.  Average  car-miles  per  car-day. 

If,  for  example,  the  car-load  is  30  net  tons,  the 
per  cent  of  loaded  to  total  car-miles  is  70%,  and 
the  car-miles  per  car-day  are  30,  the  net  ton- 
miles  per  car-day  are  630  (car-load — 30  tons — 
multiplied  by  per  cent  of  loaded  cars — .70 — mul- 
tiplied by  car-miles  per  car-day — 30).  An  im- 
provement in  any  one  factor  favorably  influences 
the  inclusive  unit;  a  loss  in  any  one  factor  ad- 
versely affects  it.  If  a  campaign  of  intensive  car 
loading  brings  about  an  increase  of  10%  in  the 
car-load,  to  33  net  tons,  but  also  causes  a  slomng 
up  in  car  movement  of  10%,  to  27  miles  per  day, 
the  road  is  no  better  off.  In  fact  there  is  a  slight 
loss,  as  the  ton-miles  per  car-day  will  be  624  in- 
stead of  630.  If,  further,  the  heavier  car  loading 
increases  the  empty  car  movement,  and  thereby 
decreases  the  per  cent  of  loaded  car-miles  to  total 
car-miles,  say  to  67%  instead  of  70%,  the  inclu- 
sive unit — ton-miles  per  car-day — will  suffer  a 
further  loss — 597  instead  of  630.  The  interrela- 
tion of  these  factors  is  often  overlooked.  From 
the  single  viewpoint  of  car  performance  there  is 
no  advantage  in  improving  one  factor  if  it  is  done 
at  the  expense  of  either  or  both  of  the  other  two 
factors. 

It  should  be  noted,  however,  that  one  factor  in 
this  composite  imit  is  practically  constant  from 
the  viewpoint  of  the  roads  as  a  whole.  The  total 
number  of  freight  cars  varies  but  slightly  from 
month  to  month.    It  is  affected  onlv  bv  additions 


AMERICAN  RAILROADS  387 

through  the  purchase  of  new  cars,  by  the  retire- 
ment of  old  cars,  and  by  the  fluctuations  in  the 
daily  number  of  cars  belonging  to  private  car 
lines  and  Canadian  roads.  These  changes  are 
relatively  slight  in  their  effect  on  the  total,  so 
that  it  may  be  said  that  the  net  ton-miles  per 
car-day  for  the  roads  as  a  whole  will  fluctuate 
almost  directly  with  increases  or  decreases  in  the 
volume  of  freight  traffic.  This  is  not  so  true  of 
individual  roads  which  have  some  control  over  the 
cars  on  their  lines.  In  periods  of  thin  traffic,  each 
road  endeavors  to  reduce  its  number  of  cars  be- 
longing to  other  roads.  This  has  a  tendency  to 
shift  the  balance  of  surplus  cars  as  between  rail- 
roads and  regions,  but,  of  course,  has  no  effect 
on  the  grand  total. 

In  one  other  notable  particular,  the  new  plan 
recognizes  the  prime  importance  of  the  time  ele- 
ment, that  is  in  locomotive  utilization.  Hereto- 
fore, there  were  no  complete  data  to  show  the 
distribution  of  the  hours  in  the  locomotive  day. 
Form  4  contains  the  most  radical  elaboration  of 
orthodox  statistical  practise,  as  it  provides  for 
the  division  of  serviceable  locomotive  time  be- 
tween that  spent  in  productive  road  service,  that 
spent  at  terminals  ''standing  by"  both  before  and 
after  the  road  run,  and  that  spent  in  the  engine- 
house  between  trips.  The  latter  item  is  sub- 
divided further  to  show  how  much  of  the  time  the 
locomotive  is  undergoing  repairs  or  receiving 
other  attention  at  the  hands  of  the  mechanical 
department  forces,  and  how  much  of  the  time  it 
remains  idle  in  the  enginehouse  awaiting  call 
from  the  transportation  department. 


388  AMERICAN  RAILROADS 

An  examination  of  the  details  of  the  hours  of 
serviceable  locomotives  is  facilitated  by  the  re- 
quirement that  the  hours  under  each  subdivision 
on  the  report  shall  be  expressed  also  in  percent- 
ages of  total  serviceable  locomotive  hours.  Thus 
it  is  easy  to  compare  the  percentage  of  time  on 
the  road,  at  terminals  and  in  enginehouses.  When 
traflQc  is  heavy  it  is  desirable,  of  course,  to  show 
a  high  percentage  of  time  in  productive  road  ser- 
vice, and  to  take  steps  to  control  the  unproductive 
hours  at  terminals  and  in  enginehouses.  When 
traffic  is  subnormal,  it  is  inevitable  that  the  time 
in  the  enginehouse  (or  as  stored  locomotives)  will 
increase,  but  there  is  the  same  necessity  for 
watching  terminal  time,  as  the  crews  are  paid  for 
the  hours  ''standing  by"  at  the  same  rate  as  on 
the  road.  The  percentages,  of  course,  show  wide 
variations  as  between  roads,  reflecting  differences 
in  traffic  conditions,  in  physical  facilities,  and  in 
the  policy  of  locomotive  assignment — whether  to 
single  crews,  double  crews,  multiple  crews  or  to 
pooled  crews.  It  is  not  safe  to  draw  general  con- 
clusions from  the  figures  alone  without  first  hand 
information  as  to  local  conditions. 

No  attempt  has  been  made  by  the  Railroad  Ad- 
ministration thus  far  to  use  the  statistics  for 
road-by-road  comparisons.  The  figures,  as  re- 
ported, are  summarized  and  published,  but  as 
comparisons  with  the  preceding  year  will  not  be 
possible  until  the  October,  1919,  reports  are  re- 
ceived, the  full  value  of  the  report  for  compara- 
tive purposes  will  not  be  apparent  until  the  full 
year  has  elapsed.  But  even  without  the  last  year 
comparison  the  figures  for  the  first  year  have 


AMERICAN  RAILROADS  389 

been  of  value,  as  they  give  a  clear  picture  which 
localizes  the  extent  of  the  non-use  of  power.  There 
is  force  to  the  assertion  that  under  existing  con- 
ditions, with  a  surplus  of  locomotives,  the  value 
of  the  data  is  not  as  great  as  when  there  is  a 
shortage  of  power.  The  continuation  of  the  rec- 
ord, however,  provides  a  bench-mark  for  com- 
parisons of  future  performance,  and  will  have  an 
educative  value  as  all  concerned  learn  to  appre- 
ciate the  full  significance  of  the  figures.  The  low 
percentage  of  time  on  the  road  will  surprise  many 
who  have  little  conception  of  what  it  really  is. 
The  high  percentage  of  time  at  terminals  (in  cer- 
tain instances)  will  throw  light  on  overtime  pay- 
ments. The  data  should  be  of  importance  to 
supervisory  or  executive  officers  in  passing  upon 
recommendations  for  the  purchase  or  transfer  of 
power,  or  as  to  the  necessity  for  improvements  at 
terminals  and  enginehouses. 

The  requirements  of  Form  4  brought  some  pro- 
tests from  roads  which  had  no  statistics  of 
distribution  of  locomotive-hours,  and  which  con- 
sequently were  put  to  some  additional  expense  in 
compiling  the  figures.  The  answer  of  the  Eail- 
road  Administration  was  that  while  it  recognized 
the  difficulties  which  lie  in  increasing  the  per- 
centage of  hours  on  the  road  in  productive  ser- 
vice, yet  it  maintained  that  effective  remedial 
measures  may  not  be  applied  without  a  complete 
knowledge  of  the  facts,  not  from  casual  observa- 
tion or  off-hand  statcmorits,  but  from  a  current 
and  comprehensive  record. 


390  AMERICAN  RAILROADS 

It  is  pertinent  at  this  point  to  refer  to  one  fea- 
ture which  is  subject  to  misunderstanding,  and 
concerning  which  the  United  States  Railroad  Ad- 
ministration has  been  criticized.  Prior  to  federal 
control,  the  Railroads'  War  Board  inaugurated 
a  monthly  Summary  of  Freight  Operation  which 
among  other  statistics,  showed  what  was  termed, 
*'Per  cent  of  freight  locomotives  in  shop  or  await- 
ing shop."  No  clear  definition  was  given,  but  it 
was  generally  understood  by  the  reporting  car- 
riers to  apply  only  to  the  locomotives  held  out  of 
service  for  general  or  classified  repairs,  which  are 
made  in  the  general  shops,  and  was  not  meant  to 
embrace  locomotives  held  out  of  service  for  run- 
ning repairs  or  other  light  repairs  which  in  most 
cases  are  made  in  the  enginehouses,  although 
often  made  in  the  general  shops. 

Under  federal  operation  the  monthly  summary 
above  referred  to  was  continued  without  change 
in  basis  until  October,  1918,  when  the  standard- 
ized statistics  became  fully  effective.  Under  the 
new  plan,  the  policy  is  to  hold  the  operating  de- 
partment to  a  high  standard  in  locomotive  utiliza- 
tion, and  the  dividing  line  between  serviceable 
and  unserviceable  locomotives  was  set  at  those 
which  are  held  24  hours  or  more  for  repairs  of 
any  kind,  whether  running  repairs  or  classified 
repairs.  The  record  is  kept  on  an  hourly  basis, 
and  the  average  number  of  unserviceable  locomo- 
tives per  month  is  obtained  by  dividing  the 
monthly  aggregate  hours  of  locomotives  held  24 
hours  or  more  for  repairs,  by  the  total  hours  in 
the  month.  This  change  in  method  naturally 
brought  about  an  apparently  large  increase  in 


AMERICAN  RAILROADS  391 

the  percentage  of  unserviceable  locomolivL'S.  The 
percentage  (in  freight  service)  on  the  last  report 
on  the  old  basis  (September,  1918)  was  14.8%. 
On  the  first  report  on  the  new  basis  (October, 
1918)  it  is  shown  as  25.1%.  Actually  there  was 
practically  no  difference  in  the  condition  of  the 
locomotives  in  the  two  consecutive  months.  The 
difference  is  due  entirely  to  the  change  in  basis 
which  was  made  under  war  conditions  with  a  view 
to  showing  conditions  in  their  worst  light  so  that 
all  concerned  might  be  impressed  with  their  re- 
sponsibility for  keeping  locomotives  employed  to 
their  maximum  productive  capacity.  The  use  of 
the  word  *' unserviceable"  is  somewhat  strained, 
as  it  is  not  fairly  accurate  (although  technically 
correct)  to  say  that  a  locomotive  which  is  held  24 
hours  for  an  hour's  repairs,  is  "unserviceable." 
Yet  the  line  had  to  be  drawn  definitely,  and  it  was 
set  at  24  hours'  delay  for  repairs  of  any  kind. 

As  already  stated  the  Administration  has  been 
criticized  because  its  reports  for  July,  1919,  show 
27.2%  of  freight  locomotives  unserviceable,  while 
the  July,  1918,  report  on  the  Eailroads'  War 
Board  basis  shows  the  percentage  as  14.1%.  Prac- 
tically all  of  the  difference  is  due  to  the  change 
in  basis.  The  current  summaries  now  bear  the 
footnote : 

The  factor  of  "unserviceable  locomotives"  here  used 
is  a  factor  designed  to  be  correlated  with  performance 
in  transportation  and  is  not  designed  to  reflect  and  does 
not  reflect  the  physical  condition  of  the  equipment.  The 
factor  reflects  not  merely  the  need  for  repairs  but  also 
the  extent  of  delay  in  obtaining  the  repairs;  and  does 
this  not  merely  with  respect  to  classified  repairs,  the 


392  AMERICAN  RAILROADS 

need  for  which  implies  actual  disability  in  the  equip- 
ment, but  also  with  respect  to  running  repairs  for  which 
locomotives  are  held  24  hours  or  more.  To  ascertain  the 
physical  condition  of  the  equipment  reference  should 
be  made  to  the  locomotives  in  shop  or  awaiting  shop 
for  classified  repairs. 

Separation  of  Freight  Train  Statistics  by  Directions 

On  Form  1  all  of  the  basic  information  and  all 
of  the  averages  or  ratios  are  shown  separately 
by  directions — east,  west  and  total.  Where  the 
movement  of  traffic  as  a  whole  is  not  east  and 
west,  it  may  be  shown  as  north  and  south,  or 
branches  which  run  north  or  south  may  be  com- 
bined with  east  or  west  according  to  traffic  move- 
ment. The  requirement  of  separation  by  direction 
is  designed  to  throw  light  on  the  effect  of  unbal- 
anced traffic,  and  to  permit  a  separate  analysis 
of  the  performance  in  each  direction.  Such 
an  analysis  is  essential  to  an  accurate  determina- 
tion of  the  effect  of  fluctuations  by  directions. 

Freight  traffic  usually  is  unbalanced.  There  is 
usually  what  is  called  the  "direction  of  prevail- 
ing traffic,"  although  with  seasonal  or  other 
traffic  fluctuations  it  may  alternate  between  east 
and  west.  Ordinarily  it  is  unnecessary  to  pay 
much  attention  to  train  loading  in  the  light  direc- 
tion, as  the  locomotives  and  crews  in  the  direction 
of  heavy  traffic  must  be  returned  in  the  light 
direction  with  little  regard  to  train  loading.  It 
may  be,  however,  that  the  grades  are  easy  in  the 
direction  of  traffic  and  are  heavy^  in  the  opposite 
direction.  In  that  case  it  is  probable  that  the 
train  loading  in  the  direction  of  light  traffic  re- 


AMERICAN  RAILROADS  393 

quires  the  greatest  supervision.  In  one  specific 
case  the  westward  gross  tons  normally  are  from 
55%  to  65%  of  the  eastward  gross  tons,  but  the 
heaviest  grades  are  against  the  westward  move- 
ment. For  a  given  type  of  locomotive  the  east- 
ward rating  is  2,000  gross  tons;  westward  it  is 
1,200  tons,  or  60%  of  the  eastward  rating.  It  is 
plain,  then,  that  in  this  case  the  eastward  direction 
is  controlling  so  long  as  the  westward  gross  tons 
are  not  more  than  60%  of  the  eastward  gross 
tons.  When  it  exceeds  60%,  it  is  the  westward 
movement  which  controls  the  number  of  locomo- 
tives and  crews. 

This  instance  will  illustrate  the  importance  of 
the  required  separation  in  the  statistics  of  traffic, 
of  train-,  locomotive-,  and  car-mileage,  and  of 
train-hours.  Heretofore,  its  importance  has  been 
recognized  in  the  statistical  practise  of  but  very 
few  railroads. 

Actual  Figures  from  One  Report 

Space  will  not  permit  the  reproduction  of  all  of 
the  forms  and  summaries.  A  single  example  will 
suffice  to  show  the  design  of  one  form,  and  to 
illustrate  the  completeness  of  the  data  pertaining 
to  freight  train  operation.  The  report  herein 
reproduced  contains  the  actual  figures  of  one  rail- 
road on  Form  1  for  the  month  of  May,  1919, 
compared  with  May,  1918.  In  this  case  the  road 
had  unusually  complete  statistics  for  1918,  and 
was  able  to  adapt  its  records  to  fit  the  compara- 
tive requirements  of  the  new  report. 


394  AMERICAN   RAILROADS 

lu  analyzing  this  report  we  note  first  that  the 
gross  ton-miles  show  a  decrease  of  20.4%.  This 
change  in  the  actual  gross  production  should  be 
compared  with  the  potential.  The  rating  ton- 
miles  show  a  decrease  of  21.5%.  This  comparison 
indicates  an  improvement  in  loading  to  the  loco- 
motive rating.  A  glance  at  Item  14  shows  an  in- 
crease of  1.4%  in  the  per  cent  of  actual  to 
potential.  We  note  further,  however,  that  the 
improvement  occurred  wholly  in  westward  move- 
ment. The  eastward  performance  shows  a  de- 
crease in  loading  efficiency.  The  details  by 
directions,  under  Items  5  and  6,  show  that  the 
traffic  is  unbalanced,  the  prevailing  direction  be- 
ing eastward.  The  percentages  of  decrease  show 
that  the  loss  in  traffic  both  in  gross  and  net  (par- 
ticularly in  net)  was  relatively  greater  eastward 
than  westward. 

The  next  step  is  to  compare  the  gross  ton-miles 
with  the  train-miles.  The  percentages  of  change 
are  20.4%  decrease  in  gross  ton-miles  and  29.0% 
decrease  in  train-miles.  These  figures  indicate 
an  improvement  in  the  train-load.  The  results 
are  shown  in  Item  9.  The  eastw^ard  gross  train- 
load  shows  an  increase  of  6.3%,  the  w^estward  load 
an  increase  of  23.8%,  and  in  both  directions  com- 
bined, the  increase  is  12.2%. 

Attention  should  now  be  directed  to  the  rela- 
tion between  locomotive-miles  and  train-miles. 
The  train-miles  show  a  decrease  of  29.0%.  The 
decrease  in  principal  and  helper  locomotive-miles 
is  30.7%.  We  note  in  passing  that  there  has  been 
a  substantial  saving  in  light  locomotive-miles — 
locomotives  run  without  trains.    The  relation  be- 


AMERICAN  RAILROADS  395 

tween  the  train-miles  and  locomotive-miles  is  seen 
in  Item  9,  which  shows  a  decrease  of  2.3%  in  the 
locomotive-miles  per  train-mile.  It  is  evident, 
therefore,  that  the  increase  in  the  train-load  was 
not  due  to  the  greater  use  of  multiple  locomotives. 

It  might  be  of  interest  in  this  case  to  ascertain 
why  the  locomotive-miles  decreased  relatively 
more  than  the  rating  ton-miles.  A  simple  compu- 
tation (Item  6-c  divided  by  Item  3-c)  shows  that 
the  average  rating  per  locomotive  in  11)19  was 
1,519  as  against  1,341  in  1918.  This  difference 
indicates  one  or  more  of  six  things:  (1)  the  ac- 
quisition of  new  locomotives  of  greater  power; 
(2)  the  relatively  greater  use  of  heavier  power 
and  relatively  smaller  use  of  lighter  power,  the 
latter  being  stored;  (3)  the  application  of  super- 
heaters to  locomotives  not  heretofore  so  equipped ; 
(4)  an  upward  revision  of  tonnage  ratings;  (5) 
relatively  more  trafiSc  on  the  divisions  which  have 
the  heavier  tonnage  ratings;  or  (6)  grade  revi- 
sions which  permit  of  heavier  train  loading.  In 
this  particular  case  the  increase  in  the  average 
rating  is  due  to  a  combination  of  four  out  of  six 
reasons  just  suggested. 

One  reason  for  the  better  westward  perform- 
ance is  seen  in  the  car-miles.  They  show  a  heavy 
decrease  in  loads  eastward,  but  westward  we  find 
an  increase  of  7.5%.  It  is  of  interest  here  to 
glance  at  the  average  car-load.  Item  11.  It  shows 
a  loss  of  12.2%,  with  but  little  difference  in  the 
change  as  between  directions.  The  difference  be- 
tween directions  is  greater,  however,  in  the  per 
cent  of  loaded  to  total  car-miles.  Eastward  the 
proportion  of  loads  decreased  slightly  while  in 


396 


AMERICAN   RAILROADS 


UNITED   STATES    RAILllOAD    ADMINISTRATION 

DIRECTOR    GENERAL    OF    RAILROADS 


A.   B.   &   C.   RAILROAD 

(Name  of  reporting  carrier) 

FREIGHT  TRAIN   PERFORMANCE 

(Not  including  mixed,  specinl,  or  motor  car  trains) 
MontJi  of  MAY,   1919,  compared  with  same  month  of  previous  year. 


MONTH     or     MAY 


INCREASE  OR 
DECRSA8B 


THIS 
YEAR 


LAST 
YEAR 


PiR 
AMOUNT        CENT 


1,  (a)  Average  miles  of  road 

operated  (Note  A) 

(6)  Average   miles   other   main 
tracks  operated (Note  A) 

2.  Train-miles  (Note  B) : 


8,563.2 
25.3 


8,581.2 
25.8 


2.0 


(a)  East 

(b)  West 

(c)  Total 


181,790 
177,465 
359,261 


261,469 
244,537 
506,006 


d  79,673 
d  67,072 
d  146,745 


dSO.S 
d27.4 
d29.0 


Locomotive-miles  (Note  B) : 

(a)  Principal  and  helper,  east... 

(b)  Principal  and  helper,   west . 

(c)  Total  principal  and  helper, 

east  and  west  

(d)  Light,  east  

(e)  Light,   west   

(/)  Total  light,  east  and  west 

(g)  Grand  total,  east  and  west. 


190,174 
184,121 

874,295 
2,195 
6,431 
8,626 

382,921 


280,199 
250,802 

540,001 

8,057 

16,349 

19,406 

559.407 


d  90,025  d  32.1 
d  75,681  d29.1 


d  165,708 
d  862 
d  9,918 
d  10,780 
d  176,486 


d30.7 
d28.2 
d60.7 
dSS.S 
dSl.S 


Car-miles  (thousands)   (Note  B)\ 

(a)  Loaded,  east  

(b)  Loaded,    west    

(c)  Loaded,  total  

(d)  Empty,  east  

(e)  Empty,  west  

(/)  Empty,  total  

(g)  Caboose,  east  

(h)  Caboose,    west   

(t)   Caboose,   total   

(})   Total,  east  

(k)  Total,  west  

(0    Grand   total   


6,030 

3,058 

9,088 

704 

8,237 

8,941 

186 

183 

369 

6,920 

6,478 

13,398 


7.836 

2,845 

10,681 

856 

4,144 

5,000 

281 

263 

544 

8,973 

7,252 

16.225 


1,808 
213 

1,593 
152 
907 

1,059 

95 

80 

175 

2,053 
774 

2,827 


d23.0 
7.5 
d  14.9 
d  17.8 
d21.9 
d21.2 
d33.8 
d30.4 
d32.2 
d22.9 
d  10.7 
d  17.4 


Gross  ton-miles  (thousands) 
(Note  C): 

(a)  East     

(6)  West   

(c)  Total     


267,713  362.186 
182,302  202,915 
450,01.')     565,101 


d  94,473 
d  20,613 
d  115,086 


d26.1 
d  10.2 
d20.4 


AMERICAN  RAILROADS 


897 


MONTH     OF     MAY 


INCREASE     OR 
DECREASE 


THIS  LAST  PER 

YEAR  YEAR         AMOUNT  CENT 


fl.  Rating  ton-miles   (thousands) 
(Note  D): 

(a)  East   _ 

(6)  West    _ 

...    299,506 
...  1  268,963 
...     568,469 

399,123 
324,897 
724,020 

d    99,617 
d    55,934 
d  155,551 

d2S.O 
dl7.2 

(c)  Total    _ 

d21.5 

7.  Net  ton-miles  (.thousands) 
(Note  E): 

(a)  East    _ 

(b)  West    _.... 

(c)  Total    „ 

128,001 

55,322 

183,323 

184,919   d    56,918 

60,429   d       5,107 

245,348    d    62.025 

dSO.S 
d  8.5 
d2S.3 

8.  Train-hours   (Note  F) : 

(a)  East    _. „ 

(6)  West    

(c)  Total    

16,029 
16,126 
32,155 

22,970 
20,385 
43,855 

d       6,941 
d       4,259 
d    11,200 

d30.2 
d20.9 
d25.8 

UNITED    STATES    R.\ILROAD    ADMINISTRATION 

DIRECTOR    GENERAL     OF    RAILROADS 


A.   B.   &   C.   RAILROAD 
(Name  of  reporting  carrier) 

FREIGHT  TRAIN  PERFORMANCE 
(Not  Including  mixed,  special,  or  motor  car  trains) 

Month  of  MAY,  1919,  compared  with  same  month  of  previous  year. 


Averages 
9.  Per  freight  train  mile: 

(a)  Locomotive   miles,    east 
(excl.   light.).. ..(3a-^2a) 

(b)  Locomotive   miles,    west 

(excl.    light). ...(Sb-^Sb) 

(c)  Locomotive    miles,    total 

(excl.     light)....(Sc-i-Sc) 

(d)  Loaded  car  miles,  east 

(4a-H2a) 

(e)  Loaded  car  miles,  west 

(l,b-^Sb) 

(/)  Loaded  car  miles,  total 
(Uc-^ic) 


1.046 
1.038 
1.042 

33.2 
17.2 
25.8 


1.07a      d  .02d 

1.062      d         .024 
d         .025 


1.067 

30.0 
11.6 
21.1 


8.2 
5.6 
4.2 


d  2.4 
d  2.3 
d    2.3 

10.7 
48.3 
19.9 


398 


AMERICAN  RAILROADS 


(g)  Empty  and  caboose  car 
miles,  eaat(l,d+l,g)^:a 

(A)  Empty  and  caboose  car 
miles,  ■weat(Ac+A/l)-7-«6 

(i)  Empty  and  caboose  car 
miles,  total(A/+Ai)-T-fc 

(i)    Total    car    miles,    east 

-Uj^ta) 

(*)  Total    car    miles,    west 

(hk-i-tb) 

(/)  Total  car  miles,  total 
(Ul-i-ic) 

(m)  Gross  ton  miles,  east 
(Sa-^ta) 

(n)  Gross  ton  miles,  west 
(5b-^tb) 

(o)  Gross  ton  miles,  total 
(5c-7-«c) 

(p)  Rating  ton  miles,  east 
(Sa-f-fo) 

(q)  Rating  ton  miles,  west 
(66-=- f  6) 

(r)  Rating  ton  miles,  total 
(6c-^Sc) 

(s)  Net  ton  miles,  east 
(7a-~ta) 

(t)  Net  ton  miles,  west 
(76-f-«6) 

(u)  Net  ton  miles,  total 
(7c-hic) 


8.8 

11.1 

4.9 

4.8 

0.8 

32.9 

19.3 

18.0 

3.2 

18.2 

12.0 

11.0 

38.1 
36.5 
37.3 

1,472.8 
1,027.8 
1,292.0 

1,647.5 
1,519.0 
1,582.8 

704.1 
811.7 
910.8 


10.  Per  freight  train   hour: 
(a)  Train  miles,  east  (speed 

in  miles  per  hour) 

(ta-^8a)    '         11. S 

(6)  Train  miles,  west  (speed 

in  miles  per  hour) 

-(tb-~8b)  11.0 

(c)  Train  miles,  total  (speed 

in  miles  per  hour) ' 

(tc-^8c)     I         11.2 

(d)  Gross   ton    miles,    east 

(6a-^8a)     \  16,701.8 

(e)  Gross  ton   miles,   west     i 

(6b-^8b)     1 11,804.8 

(/)  Gross  ton   miles,   total     I 

(5c-r-8e)       18.995.2 

(g)  Net  ton  miles,  east 

_ (7a-i-8a)        7.085.6 

(ft)  Net  ton  miles,  west 

(7b-^8b)        8.480.6 

(i)    Net  ton  miles,   total 

(7c-^Sc)        5,701.2 


84.8 
29.7 
82.1 

1,885.2 

820.8 

1,116.8 

1,526.5 
1,828.0 
1,430.0 

707.1 
247.1 
484.9 


11.4 

12.0 

11.7 

15.707.8 

9,954.1 

13,034.8 

8,050.5 
2.904.4 
9,659.0 


87.4 
197.5 
185.8 

121.0 
187.0 
151.4 

3.1 

64.6 

25.4 

.6 

1.8 

1.0 


d         .1 

d       1.0 

d         .5 

934.0 

1,850.7 

960.9 

d    64.9 

466.2 
42.2    I 


fl.3 
28.8 
12.2 

7.9 
14.1 
10.0 

d       .4 

26.1 
5.2 

14.0 
7.2 
9.1 


d      .9 

d    8.3 

d    4.3 

5.9 

13.0 

7.4 

d       .8 

15.7 

.7 


AMERICAN  RAILROADS 


399 


MONTH      OF     MAY 


INCREASE     OR 
DECREASE 


THIS 
YEAR 

LAST 
YEAR 

AMOUNT 

PER 
CENT 

11.  Net  ton  miles  cer  loaded 
car  mile 

(a)     East (7a-~l,a) 

(6)     West (7b-^Ub) 

(c)     Total {7c-^l,c) 

21.2 
18.1 

20.2 

23.6 
21.2 
23.0 

d       2.4 
d      3.1 
d      2.8 

dlO.2 
dl4.6 
dl2.2 

12.  Per  cent  loaded  to  total  car 
miles     (excl.     caboose): 

(a)    East 4a-i-(4a+>4d) 

(6)    West l,b-^(l,b+i,e) 

(c)    Total Uc-=r(Uc+Uf) 

1 

89.5  90.2 

48.6  40.7 
69.8                 68.1 

d         .7 

7.9 
1.7 

d      .8 

19.4 

2.5 

13.   Per  cent   net  ton   miles  to 
gross   ton   miles: 

(a)     East (7a-^5a) 

(6)     West (7b^5b) 

(c)     Total (7C-H5C) 

47.8 
30.3 
40.7 

51.1 
29.8 
43.4 

d       3.3 

.5 

d      2.7 

d    6.S 

1.7 

d    6.2 

14.  Per  cent  gross  ton  miles 
to  rating  ton  miles: 

(a)    East (5a-7-6a) 

(ft)  West. (6b^6b) 

(c)    Total (5c-^6c) 

89.4 
67.8 
79.2 

90.7 
62.5 
78.1 

d      1.3 

5.3 
1.1 

d    1.4 

8.5 
1.4 

NOTES 

(A)  Miles  of  road — miles  of  first  running  track.  Miles  other  main 
tracks — miles  of  second,  third,  fourth,  or  other  multiple  running  tracks, 
not  including  yard  tracks  and  sidings. 

(B)  Follow  "Classification  of  train  miles,  locomotive  miles,  and  car 
miles,"  Interstate  Commerce  Commission,  July  1,  1914.  Include  electric 
locomotive  trains,  but  exclude  mixed,  special,  and  motor  car  trains. 
Train  miles — Account  801,  both  ordinary  and  light;  locomotive  miles- 
Account  811;  car-miles — Account  821.  Where  movement  of  traffic  as  a 
whole  is  not  east  and  west,  substitute  north  for  east  and  south  for  west, 
or  combine  north  and  south  with  east  and  west  according  to  traffic  move- 
ment. 

(C)  Gross  ton-miles — tons  of  2,000  lbs.  behind  locomotive  tender  (cars, 
contents,  and  caboose)  moved  one  mile;  to  be  computed  from  conductors' 
train  reports.  Include  electric  locomotive  trains,  but  exclude  mixed, 
special,  and  motor  car  trains. 

(D)  Rating  ton-miles — the  potential  gross  ton-miles  which  would  have 
been  produced  had  all  trains  been  loaded  to  100%  of  the  slow  freight 
rating  for  normal  weather  conditions,  taking  account  of  changes  in  rat- 
ing over  sections  of  the  run.  When  the  potential  train  load  in  the 
direction  of  favoring  grades  is  now  expressed  in  number  of  cars  an 
arbitrary  tonnage  rating  should  be  used  as  the  basis  for  Item  6. 

(E)  Net  ton  miles — tons  of  revenue  and  nonrevenue  freight  moved 
one  mile;  to  be  computed  from  tlie  conductors'  train   reports. 

(F)  Train  hours — the  elapsed  time  of  trains  between  the  time  of 
leaving  initial  terminals  and  time  of  arrival  at  final  terminals,  including 
delays  on  the  road.  May  be  taken  from  conductors'  train  reports  or 
dispatchers'  train  sheets. 


400  AMERICAN   RAILROADS 

the  westward  direction  there  is  an  increase  of 
19.4%.  Both  the  car-load  and  the  percentage  of 
loaded  cars  have  a  material  elfect  on  the  car-load, 
as  it  is  possible  to  handle  a  greater  gross  train- 
tonnage,  in  heavily  loaded  cars  with  few  empty 
cars,  than  in  lightly  loaded  cars  with  a  large  pro- 
portion of  empties.  The  nnit  resistance  (per  ton) 
of  an  empty  car  is  approximately  twice  as  great 
as  that  of  a  car  loaded  to  its  weight  capacity.  A 
locomotive  on  a  given  run  may  be  able  to  haul 
3,000  gross  tons  in  fully  loaded  coal  cars,  yet  be 
unable  to  haul  more  than  2,400  gross  tons  of 
empty  or  very  lightly  loaded  cars. 

Attention  may  next  be  directed  to  the  net  ton- 
mile  so  as  to  see  the  relation  between  the  paying 
load  and  the  gross  load  of  the  train.  It  is  noted 
that  the  net  ton-miles  show  a  decrease  of  25.3%, 
the  loss  being  much  greater  eastward.  As  the 
loss  in  gross  ton-miles  is  20.4%,  it  is  plain  that 
the  net  ton-miles  this  year  bear  a  lower  percent- 
age to  gross.  The  details  are  shown  in  Item 
13.  The  loss  was  altogether  in  eastward  move- 
ment. Its  per  cent  of  net  to  gross  is  6.5%  less 
than  last  year,  while  the  westward  movement 
shows  an  increase  of  1.7%,  the  combined  unit 
showing  a  loss  of  6.2%. 

Now,  we  may  examine  the  effect  of  the  time  ele- 
ment. Train-hours  show  a  decrease  of  25.8%, 
while  train-miles  show  a  decrease  of  29.0%.  This 
indicates  a  loss  in  train-speed.  Item  10  show^s  the 
extent  of  the  loss — 4.3%  decrease  in  miles  per 
hour.  The  decrease  is  greater  in  the  westward 
direction. 


AMERICAN  RAILROADS  401 

The  combined  effect  of  changes  in  gross  train- 
load  and  speed  is  shown  in  the  gross  ton-miles 
per  train-hour.  In  this  case  there  is  a  gain  in  one 
factor  and  a  loss  in  the  other  factor.  The  gross 
train-load  shows  an  increase  of  12.2% ;  the  train 
speed  shows  a  decrease  of  4.3%.  The  gain  in  the 
load  was  sufficient  to  offset  the  loss  in  the  speed, 
consequently  we  find  an  increase  of  7.4%  in  gross 
ton-miles  per  train-hour. 

Finally,  we  may  turn  to  the  unit  which  is  the 
net  result  of  those  already  discussed— the  net 
ton-miles  per  train-hour.  The  figures  show  a 
slight  improvement— an  increase  of  0.7%.  The 
eastward  performance  shows  a  loss  of  0.8%,  but 
the  westward  performance  reflects  a  gain  of 
15.7%.  The  relatively  small  gain  in  net  ton-miles 
per  train-hour,  compared  mth  gross  ton-miles 
per  train-hour,  is  due  to  the  lower  ratio  of  total 
net  ton-miles  to  total  gross  ton-miles.  And,  as 
already  stated,  this  is  due  to  a  smaller  car-load, 
although  the  loss  in  that  factor  is  lessened  by  a 
relatively  smaller  gain  in  the  per  cent  of  loaded 
to  total  car-miles. 

The  foregoing  comments  are  intended  merely 
to  be  suggestive.  No  two  persons  ^vill  follow  the 
same  order  in  undertaking  an  analysis  of  the 
figures.  It  is  plain,  however,  that  whether  we 
proceed  from  the  basic  data  to  the  final  inclusive 
unit,  or  work  backward  from  that  unit,  it  is  easy 
to  trace  the  effect  of  the  changes  in  each  factor, 
and  to  proceed  with  intelligent  inquiries  designed 
to  bring  out  the  reasons  for  the  relatively  poorer 
performance  in  the  one  direction.  The  statistics 
on  this  form  should,  of  course,  be  compared  with 


402  AMERICAN   RAILROADS 

those  on  the  reports  of  locomotive  performance, 
of  distribution  of  locomotive  hours,  of  freight  car 
performance,  and  of  locomotive  and  train  costs, 
as  they  are  all  interrelated. 

Publication  of  Summaries 

Reference  has  already  been  made  to  the  fact 
that  the  policy  of  the  United  States  Railroad  Ad- 
ministration is  to  disseminate  the  statistical 
summaries  so  that  the  Federal  Managers  and 
other  operating  officials  of  the  individual  roads 
may  have  complete  and  current  information,  not 
only  with  respect  to  their  o\vn  performance,  but 
also  with  respect  to  the  comparative  statistics  of 
all  other  railroads.  This  is  accomplished  by 
monthly  summaries  which  show  for  each  road  and 
for  each  region  the  more  important  items  com- 
piled from  the  individual  reports  on  Forms  1  to  8, 
inclusive.     These  summaries  are: 

Freight  Train  and  Froip:ht  Locomotive  Performance 
(based  on  Forms  1  and  3). 

Passenger  Train  and  Passenger  Locomotive  Perform- 
ance (based  on  Forms  2  and  3). 

Number  of  Locomotives  and  Distribution  of  Locomo- 
tive Hours  (based  on  Form  4). 

F'reicrlit  Trafific  Movement  and  Car  Performance 
(based  on  Form  5). 

Freight  Locomotive  and  Freight  Train  Costs  (based 
on  Form  6). 

Condensed  Income  Account  (based  on  Form  7). 

Passengers  Carried  One  Mile  (based  on  Form  8). 

The  data,  with  two  exceptions,  are  shown  both 
for  the  current  and  the  previous  year,  mth  the 


AMERICAN  RAILROADS  403 

percentages  of  increase  or  decrease  in  the  signifi- 
cant items.  The  two  exceptions  are  the  sum- 
maries of  Forms  1  and  4.  Complete  comparison 
with  the  previous  year  will  not  be  practicable 
until  October,  1919,  as  the  general  compilation  of 
gross  ton-miles,  rating  ton-miles  and  train-hours 
on  Form  1,  and  the  distribution  of  locomotive- 
hours  on  Form  4,  were  not  fully  under  way  imtil 
October,  1918. 

Summary 

In  conclusion  it  may  be  stated  briefly  that  the 
United  States  Railroad  Administration,  in  the 
narrower  field  of  operating  statistics,  has  brought 
about  in  unification  and  standardization,  practi- 
cally what  the  Interstate  Commerce  Commission 
has  done  in  the  broader  field  of  railroad  account- 
ing. The  new  plan  of  operating  statistics  supple- 
ments and  fits  into  the  accounting  requirements 
of  the  Interstate  Commerce  Commission,  and  re- 
quires no  duplication  of  accounting  work.  The 
new  forms  which  pertain  to  freight  performance 
and  the  utilization  of  locomotives  and  freight  cars, 
are  much  in  advance  of  the  previous  practise, 
and  place  special  emphasis  on  the  importance  of 
the  time  element  in  train,  locomotive  and  car 
performance.  Gross  ton-mile  and  train-hour 
statistics  are  now  universally  available,  the 
freight  train  data  are  now  available  by  directions, 
and  the  new  basis  for  compiling  net  ton-miles 
provides  statistics  which  are  properly  comparable 
with  train-,  locomotive-,  car-  and  gross  ton-miles. 


404  AMERICAN  RAILROADS 

The  figures  are  now  available  much  earlier  than 
was  previously  the  case,  and  the  monthly  sum- 
maries, generously  distributed,  enable  each  oper- 
ating official  to  compare  his  results  with  those  of 
his  neighbors  without  the  former  uncertainties 
and  qualifications  as  to  bases  and  methods. 

The  new  plan  has  accomplished  its  primary  pur- 
pose of  providing  the  Director  General  and  his 
staff  with  the  basic  data  and  the  significant  aver- 
ages, ratios  and  unit  costs  which  relate  to  or 
furnish  indices  of  operating  efficiency.  It  has  also 
done  much,  as  a  secondary  but  equally  important 
purpose,  in  inspiring  an  added  interest  in  the 
figures  among  Federal  Managers  and  their  sub- 
ordinates. It  is  realized  that  statistics  are  valu- 
able only  to  the  extent  that  they  are  studied  and 
their  indications  acted  upon,  and  that  the  greatest 
measure  of  value  comes  from  local  rather  than 
from  central  use.  There  is  gratifying  evidence  of 
a  tendency  locally  to  take  more  interest  in  the 
returns,  and  to  go  to  a  greater  extent  in  making 
comparisons  with  other  roads  and  regions.  This 
greater  interest  on  the  part  of  those  directly  re- 
sponsible for  results  must  inevitably  be  translated 
into  terms  of  increased  efficiency. 

Unfortunately,  it  is  not  possible  to  measure 
the  effect  in  any  definite  terms,  as  the  efficiency 
of  operation  during  the  period  of  the  war  and 
since  the  signing  of  the  armistice  has  been  so 
greatly  influenced  by  other  factors,  such  as  de- 
creased traffic,  higher  material  costs,  increased 
wages,  shorter  working  hours,  loss  of  experienced 
employees,  and  high  labor  turnover,  as  to  over- 


AMERICAN  RAILROADS  105 

shadow  the  benefits  inherent  in  the  new  statisti- 
cal plan.  It  is  clearly  evident,  however,  that  the 
higher  material  costs  and  increased  wage  rates 
make  it  necessary,  in  greater  degree  than  ever 
before,  that  those  in  authority  should  have  com- 
plete and  accurate  statistics  as  aids  to  intelligent 
management.  It  is  plain,  also,  that  whatever  the 
plan  of  railroad  management  subsequent  to  fed- 
eral control,  it  will  be  highly  desirable  to  continue 
a  statistical  policy  which  will  afford  accurate  and 
complete  comparisons  of  operating  efficiency. 


! 


INDEX 


Accounting  innovations  during 

federal  control 82 

Additions   and   betterments   to 

facilities  and  equipment 

11,  17.  20,  29,  57,   103 

Adjustment    boards    in    labor 

disputes 116,   195,   242,  286 

Anti-pooling  act,  effect  on  R.  R. 

war  board 31,     30 

Army    appropriations    act    of 

Aug.    26,    1916 34 

B 

Baker,  Newton  D.,  tribute  to 
R.  R.  war  board 27 

Bills  between  railroads,  arith- 
metical   checking 84 

Board  of  R.  R.  wages  and  work- 
ing conditions 112 


Capital    expenditures 

11,  17,  20,  29,  46,  57,   163 

Car  hire  accounting,  simplifica- 
tion       85 

Car    maintenance    during    fed- 
eral conti'ol 159 

Car  service  section,  duties  of . .     40 

Car  utilization  under  federal 
control    40,     129 

Cars   (freight),  pooling  of 73 

Carter,   W.   S.,   appointment  as 
director  of  labor 103 

Centennial  of  American  rail- 
roads           9 

Coal   movement   in    1918 125 

College  men  in   railroading 277 

Compensation  to  railroad  own- 
ers during  federal  control. .  .     56 

Competitive  influences  on  R.  R. 
war   board 31 

Congestion    of   traffic    in    1917- 
1918     29 

Consolidation 

of  railroads 227,  293 

of  ticket  offices 49,  76,  90,  210 

Contract 
between    Government   and 

railroads 53,  59,  329 

with  express  companies 63 

with  short  lines 59 

Contracts  with  outside  shops 
for  equipment  repairs 284 


D 

Davis,   James    C,    appointment 

as  director  general 199 

Deficit  under  federal  control..  199 
Development  of  American  rail- 
roads           9 

Director  general,  functions  of.     37 
Discipline  impaired  by  centrali- 
zation       192 

Dixon,  F.  H. 

Financial  results  in   1918 147 

Labor  policies   of   director 

general    173 

Rate  increases  in  1918 141 

Short  line  contracts 132 

E 

Eight-hour  day 109 

Export   freight    traffic,    control 

of    29,  75 

Express  company  contract 63 

F 

Federal  control  act.  .53,  95,  153,  310 
Federal    control,    proposed    ex- 
tension of 136 

Federal  managers,  duties  of . . .  38 
Financing  improvements  and 

additions    12,  17 

Financial  results 

in   1918 131 

in   1919 147 

in   1920 246 

in    1921 255,  263 

of  federal  control  period....  199 

Financial  situation  in  July,  1922  289 

Food  situation  in  February,  1918  124 

Foodstuffs,  movement  of  in  1918  74 

Freight  movement  in  1918 128 

Freight    revenue,    simplification 

of   divisions 84 

Freight  service,  curtailment  of 

fast  trains 49 

G 

Government  ownership,  federal 

control  as  a  test 217 

Government  shipments,  priority 

in  movement 31 

Gray,    Carl   R.,   food   situation 

in  February,  1918 125 

Guarantee    period    following 

federal  control 221 

407 


408 


AMERICAN    RAILROADS 


H 

Hadley.  Arthur  T.,  beginnings 
of  American  railroads 9 

Hill,  James  J.,  railroad  finan- 
cial  needs 21 

Hines,  Walker  D.,  appointment 
as  director  general 137 

Hodges,  George,  troop  move- 
ments    127 

I 

Interstate  commerce  commis- 
sion, policies  of  regulation.. 
11,   12,   13,   18,   21,   33,  291 

L 

Labor,  division  of,  purposes  of 

Labor  policies  of  1919 171 

Labor  relations  in  1918 47,  101 

Labor  situation 

creation     103 

in  1917 19,  35,  102 

in   1922 286 

Labor's  treatment  under  fed- 
eral control 243 

Lane  commission  on  railroad 
wages.    1918 47,   102,   106 

Locomotives,  joint  use  of... 47,     72 

M 

Maintenance  policies  during 
federal  control 5 1,  157 

McAdoo,  William  G.,  appoint- 
ment as  director  general....     34 

N 

National  agreements  with  em- 
ployees   179,   185,  259 

Negro  firemen  and  trainmen..  Ill 

O 

Off-line  agencies,  discontinu- 
ance of 91,  93,  210 

Operating  efficiency  in  1918 123 

Operating  statistics,  standardi- 
zation      85,  867 

Overtime,  punitive  rates... 109,  114 

P 

Passenger  service,  curtailment 
in 49,  H7,  210 

Payne,  John  Barton,  appoint- 
ment as  director  general....   199 

Per  diem  accounting  (for  freight 
car  use) 85 

Permanency  of  unification  poli- 
cies    205 


Permit  system  for  controlling 
freight  movement 30,  92.  211 

Political  influence  during  fed- 
eral control  213 

President's  proclamation  taking 
over   railroads 34,  30i 

Price,  Theodore,  appeal  to  pub- 
lic to  "stay  at  home" 89 

Public  attitude  toward  rail- 
roads  in    1922 268 

Public  relations  policies  of  U.S. 
railroad  administration. .  .51,     52 

Publicity  policies  of  railroads 
in  1922 270 

Purchasing,  centralization  of  .49,  211 

R 

Railroad  labor  board's  deci- 
sions,  1920-1922 241,  258,  284 

Railroad  labor  board,  func- 
tions of 231 

Railroad  oflBcers  turning  to 
other  fields , 275 

Railroads'  war  board 
anti-pooling  and  anti-trust 

laws    31 

influence  of  competition 31 

organization    23 

record  of  1917 28 

tribute   from   secretary   of 

war  27 

unification   policies 24,     28 

Railroad  wage  (Lane)  commis- 
sion,  1918 47,   102,   106 

Rate  adjustments  in  1919.. 141,  145 

Rate  decreases  in  1921-1922.256,  291 

Rate  increases 

1910 13 

1918 93 

1920 238,  251 

proposed  in   1919 148 

Rate-making  rule  of  transporta- 
tion act 223 

Receiverships  in  1915 19 

Regional  directors,  duties  of..     45 

Relinquishment  of  roads  taken 
by   Government 59 

Repairs  to  equipment  under 
contracts  with  outside  shops.   281 

S 

Sailing  day  plan    for   1.  c.  1. 

freight   93 

Salaries  of  railroad  officials. 40,  276 
Sharfman,  L  L. 

early  railroad  development. .       9 
overstatements  of  director 

general    216 

Short  lines,  contract  %vith 59 

Short  routing  of  freight 46,     74 

Solicitation  of  freight  traffic. .     49 


AMERICAN    RAILROADS 


409 


Solid  train-loads  of  foodstuffs.  7-1 
Statistics   of   operation,    stand- 
ardization of 85,  367 

Standardization 

of  cars  and  locomotives 

50.   77,  80 

of  wages  and  working  rules.  184 
State  Commissions,   relations 

with  director  general 141 

Strikes  in  1919 175 

Strike  threats  in  1921 262 

Strike  of  shopmen  in  1922 286 

T 

Taft,    William    H.,    inadequacy 
of  transportation   facilities..     21 

Terminal    unification 46 

Thelen,   Max,   appointment  as 
director  of  public  service. .. .  141 

Trackage,  joint  use  of 68 

Tracks  built  in   1906-1915 20 

Traffic 

normal  growth  of 12 

peak  load  of  in  1920 245 

Training   young   men    for   pro- 
motion    281 

Transition  from  federal  to  pri- 
vate control 221,  237 

Transportation  act  of  1920 219 

Troop  movements  in   1918 127 


U 

Unification 
under  federal  control.  .33,  68,  205 
under  R.  R.  war  board...  24,     28 

Uniform   classification 99 

United  States  railroad  admin- 
istration, official  organiza- 
tion     38,     41 

Universal   interline   way-bill...     83 
Upkeep  of  physical  property 
during  federal  control. 54,  58,  153 

W 

War  board  control  in  1917  (See 
Railroads'  war  board) 

War  period,  railroad  situation 
at  beginning 13.  14,     22 

War-time  powers  of  President 
to  take  railroads 34 

Wage  increases 

effect  on  expenses 121 

in  1918 106 

in   1919 174,  181 

in    1920 231.   253 

Wage  reductions  in  1921... 258,  284 

Way-bill,    universal    interline..     83 

Women  in  railroad  service  dur- 
ing war  110 


I 


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